THE  LAW  OF 
COMMERCIAL  PAPER 


THE  LAW  OF 
COMMERCIAL  PAPER 


COMMERCIAL  EDUCATION  SERIES 

THE   LAW   OF 
COMMERCIAL    PAPER 

PREPARED  IN  THE 

EXTENSION  DIVISION  OF 
THE  UNIVERSITY  OF  WISCONSIN 

BY 

WILLIAM  UNDERBILL  MOORE,  M.A.,  LL.B. 

FBOFE880B  OF  LAW  IN  THE  ON1VEB8ITY  OF  WISCOHBIS, 

1909-1914 
EDITED  AND  PREPARED  FOR  THE  PRESS  BY 

J.  B.  READ,  B.A.,  LL.B. 


D.  APPLETON  AND  COMPANY 

NEW  YORK         CHICAGO         LONDON 

1918 


COPTBIGHT,  1§18,  BT 

O.  APELETON  AND  COMPANY 


Printed  in  the  United  States  of  America 


TABLE   OF   CONTENTS 


CHAPTER  I 

INTRODUCTION 
SECTION  PAGE 

1.  Introductory I 

2.  Distinction  between  bills  and  notes  and  Common 

Law  debts 2 

3.  Bills  and  notes  are  transferable ;  ordinary  debts  are 

not 2 

4.  Illustrations.    Practical  importance  of  rule  that  bills 

and  notes  are  transferable 4 

5.  Bills  and  notes  differ  from  Common  Law  debts  not 

only  in  being  transferable,  but  in  that  they  are 
transferred  by  a  mere  change  in  possession      .        7 

6.  Summary 8 

7.  History  of  Mercantile  Law 9 

8.  Mercantile  Law  adoptee  in  United  States  .        .        .16 

9.  Bills  of  Exchange  Act,  1882 16 

10.  Negotiable  Instruments  Law  in  United  States  .        .17 

CHAPTER  II 
FORMAL  REQUIREMENTS  OF  COMMERCIAL  PAPER 

11.  Section  1675-1  of  the  Negotiable  Instruments  Law 

prescribes  formal  requisites  of  bills  and  notes  .  21 

12.  Materials  for  writing 21 

13.  A  note  must  contain  a  promise 22 

"Due  bill"   or  written  acknowledgment  of  a  debt 

not  a  note .23 


vi  TABLE  OF  CONTENTS 

SECTION 

Unless  time  of  payment  is  specified  in  the  instrument  24 

Or  the  words  "or  order"  or  "bearer"  are  employed  24 

14.  A  bill  must  contain  an  order 25 

Words  of  politeness  in  a  bill 25 

A  bill  distinguished  from  a  request  .        .        .,       .  26 

A  bill  distinguished  from  an  authority  to  pay         .  26 

15.  The  promise  or  order  must  be  unconditional    .        .  27 

16.  Happening  of  the  condition  does  not  cure      .        .  28 

17.  Instruments  payable  out  of  a  particular  or  special 

fund  are  conditional 28 

1 8.  Instruments  where  the  particular  fund  referred  to  as 

a  source  for  reimbursement      ....  29 

19.  Statement  of  transaction  giving  rise  to  the  instru- 

ment      31 

20.  "As  per  contract" 31 

21.  The  promise  or  order  must  be  to  pay  a  "sum  certain"  32 
Interest 33 

22.  A  bill  or  note  must  be  payable  in  money  ...  34 


CHAPTER  III 
FORMAL  REQUIREMENTS  OF  COMMERCIAL  PAPER  (CONTINUED) 

23.  Instruments  payable  "in  current  funds"  ...      36 

24.  The  instrument  must  not  contain  an  order  or  promise 

to  do  an  act  in  addition  to  the  payment  of 
money  .  ....  -      37 

25.  Incidental    and    subsidiary   clauses    not    destroying 

negotiability 39 

26.  Must  be  certain  as  to  time  of  payment      ...      40 

27.  But  if  time  specified  is  certain  to  arrive  the  bill  or 

note  is  sufficiently  certain.    Instruments  payable 

at  or  after  death 43 

28.  Instruments  payable  in  a  reasonable  time  ...  43 

29.  Instruments  payable  "on  or  before"  ....  44 

30.  Instruments  payable  in  installments  ....  44 


TABLE  OF  CONTENTS  vii 

SECTION  FAGi; 

31     Demand  instruments 48 

32.  Parties 48 

33.  Certainty  of  parties — drawer  and  maker — signature  49 

34.  Certainty  of  parties — payee 50 

Fictitious  payees 51 

35.  Certainty  of  parties — the  drawee       .  .        -53 

36.  An  instrument  to  be  negotiable  must  be  payable  to 

order  or  to  bearer 53 

37.  Date,  value  received,  place  of  payment      ...  54 

38.  Summary  definition  of  a  bill  and  of  a  note      .        .  55 

39.  Interpretation 56 


CHAPTER  IV 
INCEPTION  OF  THE  INSTRUMENT  AS  AN  OBLIGATION 

40.  Intentional  signing 57 

41.  Signing  without  reading:  carelessness  57 

42.  Carelessness  a  matter  of  fact 58 

43.  Intentional  signing  induced  by  fraud        ...  59 

44.  Delivery       .                 59 

45.  Position  of  fraudulent  payee  or  bearer    ...  60 

46.  Position  of  payee  in  case  of  conditional  delivery    .  60 

47.  Position  of  innocent  purchaser  of  the  instrument  61 

48.  Incomplete  instruments       .        .        .        .  .62 

49.  Innocent  purchaser  of  instrument  completed  in  ex- 

cess of  authority 64 

50.  Incomplete  instruments  not  intentionally  delivered 

as  such 64 

51.  Presumption  of  delivery 65 

52.  What  a  consideration  is 65 

53.  Consideration  necessary   for  negotiable  instrument  66 

54.  A  preexisting  debt  as  a  consideration      ...  66 

55.  Consideration,  example  of 69 

56.  Moral  consideration 70 

57.  Presumption  of  consideration 70 


viii  TABLE  OF  CONTENTS 

CHAPTER  V 
ACCEPTANCE  OF  BILLS  OF  EXCHANGE 

SECTION  p\GK 

58.  Subject  of  assignment 71 

59.  Function  of  acceptance 71 

60.  Form  of  acceptance 73 

Proper  acceptance 73 

Extrinsic  written  acceptance 74 

61.  Virtual  acceptance 75 

62.  Constructive  acceptance 75 

63.  Kinds  of  acceptance 76 

Conditional  acceptance 77 

Partial  acceptance 77 

Local  acceptance 78 

Acceptance  qualified  as  to  time 78 

Acceptance  by  some  but  not  all  drawees  ...  79 

64.  Payee  or  holder  need  not  take  a  qualified  acceptance  79 

65.  Effect  of  taking  qualified  acceptance  on  the  liability 

of  drawer  and  indorsers   .  80 


NEGOTIATION 

66.  Transfer  by  operation  of  law 80 

67.  Transfer  by  act  of  parties;  negotiation  81 

68.  Transfer  by  delivery .81 

69.  Transfer  by  indorsement.    Form  of  indorsement    .  82 
Must  be  written  on  instrument 82 

70.  Must  be  an  order  to  pay  whole  sum  due  on  instru- 

ment       83 

Must  be  an  order  to  pay 84 

Must  be  delivered 85 

71.  Kinds  of  indorsement:  blank  and  special  ...  85 

72.  Blank   indorsements    followed   by   special    indorse- 

ments   .  86 


TABLE  OF  CONTENTS  ix 

CHAPTER  VI 
NEGOTIATION  (Continued) 

SECTION  'AGE 

73.  Qualified  indorsements 

74.  Conditional  indorsements 91 

75.  Restrictive  indorsements 93 

76.  Delivery  without  indorsement 95 

CHAPTER  VII 
HOLDER  IN  DUE  COURSE 

77.  Legal    defenses    distinguished    from    personal    or 

equitable  defenses 100 

Infancy 107 

Insanity 107 

Forgery 107 

Illegality 107 

Fraud 107 

Duress 108 

Absence  of  voluntary  delivery 108 

Illegality 108 

78.  What    is    implicit    in    the    phrase    "holder    in   due 

course" 109 

79.  Good  faith.    Actual  notice no 

80.  Constructive  notice in 

81.  Value 114 

82.  Amount  of  value 115 

83.  Notice  before  value  paid 118 

84.  Transferee  of  holder  in  due  course  .        .        .        .119 

CHAPTER   VIII 
OBLIGATIONS  OF  PARTIES — MAKER  AND  ACCEPTOR 

85.  Promise  of  maker  and  acceptor  .        .        .        .        .  121 

86.  Presentment  and  demand  of  payment  by  the  holder 

not  necessary  to  hold  maker  or  acceptor  .         .  122 


x  TABLE  OF  CONTENTS 

SECTION  PACK 

87.  Not  even  in  case  of  demand  instruments  .        .        .123 

88.  When  negotiable  instruments  mature .        .        .        .124 

89.  When  negotiable  instruments  become  overdue        .    125 

OBLIGATIONS  OF  PARTIES — DRAWER  AND  INDORSERS 

90.  Promise  of  drawer  and  indorser      ....  127 

91.  Presentment  for  acceptance  when  necessary    .        .  127 

92.  Presentment  for  acceptance — day     ....  131 

93.  Presentment    for    acceptance — mode    of    making — 

when  excused — summary 133 

94.  Presentment  for  payment — day 136 

On  what   day  must   presentment   for   payment  be 

made? 136 

CHAPTER  IX 

OBLIGATIONS  OF  PARTIES — DRAWER  AND  INDORSERS 
(Continued) 

95.  Presentment  for  payment — place       .  .        .141 

96.  Presentment  for  payment — hour        .        .        .        .143 

97.  Presentment  for  payment  by  whom — to  whom        .     146 

98.  Presentment  for  payment — manner  of  presenting   .     147 

99.  Protest 148 

100.  Notice  of  dishonor — form 152 

101.  Notice  of  dishonor — by     whom     given — to     whom 

given .     155 

102.  Notice  of  dishonor — time 157 

103.  Notice  of  dishonor — place 159 

104.  Notice  of  dishonor — to  whom  given  .        .        .        .161 

105.  When   presentment,   protest,   and   notice   dispensed 

with — when-  delay  excused — waiver  .        .        .     161 

CHAPTER  X 

OBLIGATIONS  OF  PARTIES — DRAWER  AND  INDORSERS 
(Continued) 

106.  Drawer  and  indorsers — order  of  liability  to  holder     166 

107.  Drawer   and   indorsers — order   of   liability   among 

themselves 167 


TABLE  OF  CONTENTS  xi 

SECTION  PAGE 

108.  Liability  of  irregular  indorsers  .        .        .        .        .  169 

109.  Indorser  of  bearer  instrument 172 

WARRANTIES   OF   AN    INDORSER   OR   TRANSFEROR 

no.    Warranties 172 

ADMISSIONS   OF   MAKER,   ACCEPTOR,  AND  DRAWER 

in.    Admissions 175 

CHECKS 

112.  Checks — certification 179 

113.  Checks — presentment 179 

DISCHARGE 

114.  Discharge  in  general 181 

115.  Payment 181 

1 1 6.  Cancellation 183 

117.  Alteration 183 

118.  Renunciation 185 

119.  Discharge  of  drawer  and  indorsers  ....  185 

120.  Payment  by  drawer  or  indorser 185 

121.  Cancellation  of  drawer's  or  indorsees  signature    .  186 

122.  Renunciation 187 

123.  Discharge  of  prior  party 187 

APPENDIX 
UNIFORM  NEGOTIABLE  INSTRUMENTS  LAW 

Negotiable  Instruments  Law  of  Illinois,  Act  of  1874      .  191 

Negotiable  Instruments  Law  of  Illinois,  Act  of  1907  .        .  199 

Title      I.    Negotiable  Instruments 200 

Article  I.    Form  and  Interpretation     .        .  200 

Article  II.     Consideration     ....  205 

Article  III.    Negotiations      ....  206 

Article  IV.     Rights  of  the  Holder      .        .  209 


xii  TABLE  OF  CONTENTS 

PAGE 

Article  V.    Liabilities  of  Parties  .        .        .211 
Article  VI.     Presentment  for  Payment       .  213 
Article  VII.    Notice  of  Dishonor  .        .        .  216 
Article  VIII.     Discharge  of  Negotiable  In- 
strument     220 

Title    II.     Bills  of  Exchange 222 

Article  I.     Form  and  Interpretation    .        .  222 

Article  II.   Acceptance 223 

Article  III.     Presentment  for  Acceptance   .  224 

Article  IV.     Protest 226 

Article  V.     Acceptance  for  Honor      .        .  227 

Article  VI.    Payment  for  Honor  .        .        .  229 

Article  VII.    Bills  in  a  Set  .        .        .        .  229 

Title  III.     Promissory  Notes  and  Checks      .        .        .  230 

Article  I 230 

Title  IV.     General  Provisions 231 

Article  I 231 

Other  Provisions  in  Illinois  Law       ...                .  233 
Assignment   of   Notes    Secured  by    Chattel 

Mortgage 233 

Garnishment 234 

Gaming 234 

Limitations 235 

Notes  for  Payment  of  Property  Other  Than 

Money 235 

Negotiable  Instruments  Law  of  Wisconsin  ....  239 

General  Provisions 241 

Terms  defined 241 

"Reasonable"  or  "unreasonable"  times  .        .  242 

Negotiable  Instruments  in  General 242 

Form  and  Interpretation 242 

When  Instrument  is  negotiable     .        .        »  242 

Orders  of  municipalities        ....  243 

Warehouse   receipts 243 

Words  to  be  printed  on  face  of  note,  when  243 
Penalty  for  taking  note  without  statement 

required 243 


TABLE  OF  CONTENTS  xiii 

PAGE 

Notes  taken  for  patent,  etc.,  non-negotiable ; 

innocent  holder 244 

Sum  payable,  defined 244 

Unqualified  order  or  promise       .        .        .  244 

Determinate  future  time      ....  245 

Negotiable  character  not  affected  .        .        .  245 

Validity  and  negotiability  not  affected,  when  245 

Payable  on  demand,  when     ....  246 

Payable  to  order,  when 246 

Payable  to  bearer,  when        ....  246 

Effect  of  memoranda  on  instrument    .        .  247 

Date  prima  facie  evidence    ....  247 

Ante  or  post  dating 247 

Undated  instruments 247 

Uncompleted  instruments       ....  247 
Incomplete   instruments    completed   without 

authority 248 

Contracts  on  negotiable  paper,  when  incom- 
plete    248 

Construction  of  ambiguities  ....  249 

Trade  or  assumed  names      ....  249 

Signature  by  agent 250 

Agent  not  liable 250 

Signature  by  "procuration"  ....  250 

Indorsement  by  corporation  or  infant  .        .  250 

Forgery 250 

Bank;  forged  check;  limitation.  .        .251 

Consideration 251 

Presumptions  .        .                ....  251 

Value,  defined 251 

Value  presumed 251 

When  holder  has  lien 25: 

Absence  of  consideration  matter  of  defense  251 

Accommodation  partly  defined      .        .        .  252 

Negotiation 252 

Instrument,  when  negotiated  ....  252 

Indorsement,  what  is 252 


xiv  TABLE  OF  CONTENTS 

PAGE 

Indorsement  is  entire 252 

Special  or  blank  indorsement  .  .  .  252 

What  special  or  blank  indorsement  .  .  252 

Conversion  of  blank  into  special  indorsement  253 

Restrictive  indorsement 253 

Qualified  indorsement 253 

Conditional  indorsement  .  .  .  .  253 
Indorsements  of  instruments  payable  to 

bearer 254 

Instruments  payable  to  two  or  more  persons  254 

When  drawn  to  fiscal  officer  ....  254 

Misspelled  names    ......  254 

Negative  personal  liability    ....  254 

Prima  facie  evidence  of  negotiation  .  .  254 

Presumption 255 

Length  of  negotiability 255 

Erasing  indorsements 255 

Transfer  without  indorsements;  subsequent 

indorsement 255 

Re-issue  by  prior  party 255 

Rights  of  the  Holder 255 

Holder  may  sue 255 

Holder  in  due  course 256 

When  not  a  holder  in  due  course  .  .  .  256 

Notice  of  infirmity  in  the  instrument  .  .  256 

Defective  title 256 

Actual  knowledge  of  infirmity  necessary  to 

notice 257 

Rights  of  holder  in  due  course;  insurance 

premiums;  fraud 257 

Holder  other  than  in  due  course  .  .  .  257 

Burden  of  proof  as  to  title  .  .  .  257 

Liability  of  Parties 258 

Maker 258 

Drawer 258 

Acceptor 258 

Indorser ,  258 


TABLE  OF  CONTENTS  xv 

PACE 

Liability  of  indorser  in  blank       .        .        .    258 

Warranty 259 

Warranty  of  indorser  without  qualification  .    259 
Indorsement  of  instrument  negotiable  by  de- 
livery         259 

Indorsers  liable  in  order  of  indorsement      .    260 
Negotiation  without  indorsement  by  broker    260 

Presentment  for  Payment 260 

Presentment  when  necessary  ....    260 
Instruments  payable  on  demand    .        .        .    260 

Sufficient  presentment 260 

Presentment  at  proper  place  ....    261 
Exhibition  of  instrument      ....    261 

During  banking  hours 261 

In  case  of  death 261 

Partners 261 

Joint  debtors 262 

In  order  to  charge  drawer    .        .        .        .    262 
In  order  to  charge  indorser  ....    262 

Delay,  when  excused 262 

When  dispensed  with 262 

Dishonor 262 

By  non-payment 262 

Right  of  recourse  of  holder  ....    263 
Without  grace — maturity       .        .        .        .    263 

Time  of  payment 263 

At  a  bank 263 

Payment  in  due  course 263 

Notice  of  Dishonor 263 

Notice,  how  given 263 

Who  may  give 263 

By  agent         .        .        .        .        .        .        .    264 

Subsequent  holder 264 

Notice  on  behalf  of  entitled  party  .        .        .    264 

In  hands  of  an  agent 264 

Character  of  notice 264 

Written   notice 264 


xvi  TABLE  OF  CONTENTS 

PAGE 

To  whom  given 265 

Partners 265 

Joint  parties 265 

Bankrupt 265 

When  given 265 

Where  parties  reside  in  same  place     .        .  265 

Where  parties  reside  in  different  places      .  266 

By  mail  ........  266 

When  mailed  .        .        .        .        .        .        .  266 

Notice  to  antecedent  parties  ....  266 

Where  to  be  sent 266 

Waiver  of  notice 267 

Waiver  of  instrument 267 

Waiver  of  protest 267 

Notice,  when  dispensed  with  ....  267 

Delay,  when  excused 267 

Notice  to  drawer,  when  not  required    .        .  268 

Notice  to  indorser,  when  not  required  .        .  268 

Of  subsequent  dishonor 268 

Omission  to  give  notice 268 

Protest 268 

Discharge  of  Negotiable  Instruments  ....  269 

When  discharged 269 

Discharge  from  secondary  liability       .        .  269 

When  paid  by  secondary  party    .        .        .  270 

Renunciation  of  rights 270 

Cancellation  by  mistake 270 

Altering  of  instrument 270 

Material  alteration 271 

Bills  of  Exchange 271 

Form  and  Interpretation 271 

What  is  bill  of  exchange     ....  271 

Not  an  assignment  of  funds  .        .        .  j    .  271 

Address  of  bill 271 

Inland  and  foreign  bill 271 

Where  drawer  and  drawee  are  same  person  271 

Referee  in  case  of  need 272 


TABLE  OF  CONTENTS  xvii 

PAGE 

Acceptance  ....  .  .  272 

Acceptance  of  bill 272 

Acceptance  in  writing 272 

Written  acceptance  on  paper  other  than  bill  272 

Promise  in  writing 272 

Time  allowed  for  acceptance  ....  272 

Refusal  or  failure  to  return  ....  273 

Acceptance  before  signing  ....  273 

General  or  qualified  acceptance  .  .  273 

General  acceptance 273 

Qualified  acceptance  .....  273 

Refusal  of  qualified  acceptance  .  .  .  274 

Presentment  for  Acceptance  ...  .  274 

Where  made 274 

Failure  to  present  or  negotiate  .  .  274 

When  and  where  to  be  made  ....  275 
Presentment  of  bill  .  .  .  .  .275 

Delay,  when  excusable 275 

Presentment,  when  excused  ....  275 

When  dishonored 276 

Recourse,  when  lost 276 

When  recourse  accrues 276 

Protest .276 

As  to  foreign  bill 276 

Specifications  of  protest  ....  277 

How  made 277 

When  made 277 

Where  made 277 

For  non-payment 278 

When  acceptor  a  bankrupt  ....  278 

When  dispensed  with 278 

Lost  bill 278 

Acceptance  for  Honor 278 

Acceptance  supra  protest  for  honor  .  .  278 

To  be  in  writing 279 

For  drawer,  when 279 

Liability  of  acceptor 279 


xviii  TABLE  OF  CONTENTS 

FACE 

Engagement  of  acceptor  for  honor      .        .  279 

Bill  payable  after  sight 279 

Acceptance  of  dishonored  bill      .        .        .  279 

Presentment  to  acceptor,  how  made    .        .  279 

Payment  for  Honor 280 

Payment  supra  protest 280 

Notarial  act  of  honor,  when  necessary  .        .  280 

Foundation  of  notarial  act    ....  280 

Different  parties 280 

Bill  paid  for  honor 280 

Holder's  refusal,  supra  protest    .        .        .  281 

Payer  for  honor 281 

Bills  in  a  Set ,        .281 

When  one  bill         ......  281 

When  parts  are  negotiated   ....  281 

Indorsement  to  different  parties   .        .        .  281 

Acceptance  on  any  part 281 

Liability  of  acceptor  in  paying  part    .        .  282 

When  whole  bill  is  discharged     .        .        .  282 

Damages  on  Bills 282 

Rate  of  damages  within  state       .        .        .  282 

Rate  of  damages  without  state     .        .        .  282 

Promissory  Notes  and  Checks 282 

Negotiable  notes  defined       ....  282 

Check      .                        283 

Presentation  of  check 283 

Certified  check 283 

Discharge   of   liability  of  drawer  and  in- 

dorsers 283 

Check  not  assignment  funds  ....  283 

Sections  repealed 283 


THE  LAW  OF 
COMMERCIAL  PAPER 


CHAPTER  I 

INTRODUCTION 

Section  I.  Negotiable  promissory  notes  and  bills  of  ex- 
change are  the  only  kinds  of  Commercial  Paper.  There 
are  no  other  kinds.  There  are  a  great  many  different  forms 
which  negotiable  bills  and  notes  may  take,  some  of  which 
have  special  names,  as,  for  example,  the  bank  check,  which 
is  perfectly  familiar ;  but  when  the  several  varieties  of 
negotiable  or  commercial  paper  are  analyzed,  they  will  be 
found  to  be  either  bills  of  exchange  or  promissory  notes. 
Therefore,  in  our  general  discussion  we  shall  speak  of 
bills  and  notes  without  mentioning  special  forms. 

'These  forms  will  be  referred  to  constantly  throughout 
the  text. 

Form  i 


$900.00  Boston,  Mass.    January  31  st,  1917. 

Four  months after  date  ....  I  promise  to  pay  to 

the  order  of William  R.  Carpenter. 

Nine   Hundred Dollars ; . 

at  Ninth  Ward   Bank »•• 

Value  Received  *         / 

No Due 


2  THE  LAW  OF  COMMERCIAL  PAPER 

The  preceding  is  the  ordinary  form  of  a  negotiable 
promissory  note.  The  form  below  gives  the  ordinary  bill 
of  exchange. 

Form  2 


$i729-°°cJ  ^       Philadelphia,  Pa.      Jan.  3151,  1917. 

Two  «Di*tos;$her  date Pay  to  the 

.Wm.   R.   Carpenter 

SeveiEen^h^drcd  twenty-nine Dollars 

and  charge  the  same  to  account  of.».... 
To  J$ie£Mc$ride 
Bel  fa*; 


(S 

Distinction  between  bills  and  notes  and  Common  Law 
debts. — Section  2.  Looking  at  Form  i,  above,  let  us  sup- 
pose that  Cridler  owed  Carpenter  $900  before  Cridler  made 
and  delivered  the  promissory  note  given  in  the  form^  How 
do  Carpenter's  rights  against  Cridler  to  collect  the  $900  be- 
fore the  note  is  given  differ  from  his  rights  after  the  note 
is  delivered?  If  they  are  different,  why  should  they  be? 
Did  not  Cridler  owe  Carpenter  the  money  just  as  much  be- 
fore the  note  was  delivered  as  afterward? 

Why  should  the  mere  form  of  the  obligation  make  any 
difference  ?  That  Carpenter  has  different  rights  on  the  note 
than  he  had  on  the  debt  before  the  note  was  delivered  is 
perfectly  well  settled.  The  reason  is  that  the  law  dis- 
tinguishes between  ordinary  debts  and  obligations  to  pay 
money  on  negotiable  instruments. 

Bills  and  notes  are  transferable ;  ordinary  debts  are  not, 
— Section  3.  This  distinction  is  not  the  result  of  arbitrary 
decisions  of  courts  of  law  or  of  legislative  action,  but  is 
because  Mercantile  or  Commercial  Law,  a  branch  of  which 


INTRODUCTION  3 

is  the  Law  of  Commercial  Paper,  had  an  origin  and  growth 
apart  from  the  general  law  called  the  Common  Law.  As 
Scrutton  tells  us  in  the  extract  from  his  book  quoted  be- 
low, in  origin  the  rules  of  the  Law  of  Commercial  Paper 
were  nothing  more  than  statements  of  the  usual  practice 
of  merchants  in  dealing  with  instruments  in  the  form  of 
bills  of  exchange  and  promissory  notes;  and  it  is  only 
within  the  last  200  years  that  the  courts  have  recognized 
and  enforced  those  rules,  thereby  transforming  them  into 
law.  It  is  not  surprising,  therefore,  to  find  that  that  part 
of  the  law  dealing  with  bills  and  notes  is  based  upon  con- 
ceptions quite  antagonistic  to  the  ordinary  working  prin- 
ciples oi  the  Common  Law.  One  of  these  is  the  conception 
of  a  bill  of  exchange  or  a  promissory  note  as  a  kind  of 
property  which  may  be  transferred  by  its  owner  to  an- 
other. The  quality  of  transferability  is  one  of  the  qualities 
described  when  we  say  that  bills  and  notes  are  negotiable. 
But  are  not  all  kinds  of  property  transferable  ?  Let  us  see. 
I  may  transfer  my  horse  to  you  by  the  voluntary  act  of  de- 
livery cor.pled  with  an  intention  to  make  you  the  owner.  I 
may  transfer  my  land,  or  any  interest  therein,  by  the  inten- 
tional delivery  of  a  deed  evidencing  the  transfer  to  you.  But 
suppose  Jones  is  indebted  to  me  on  a  promise  either  oral  or 
in  writing  to  pay  me  $100,  and  I  wish  to  transfer  the  obliga- 
tion to  you;  may  I  do  so?  This  question  is  answered  con- 
clusively by  the  Common  Law  in  the  negative.  A  debt  is 
not  transferable  property.  There  is  no  way  in  which  I 
can  divest  myself  of  my  right  against  Jones  except,  of 
course,  by  the  release  of  Jones,  which  results  in  the  ex- 
tinguishment of  the  right  itself. 

Now  to  return  to  our  case.  Before  Cridler  gave  Car- 
penter the  note,  Carpenter's  right  against  the  former  to 
the  money  due  was  not  transferable.  He  was  entitled  to  col- 
lect the  $900  either  personally  or  by  his  agent,  but  he  could 


4  THE  LAW  OF  COMMERCIAL  PAPER 

not  effectively  part  with  his  right  to  the  money  either  by 
way  of  gift  or  sale.  After  the  note  was  given,  Carpenter 
might  sell  or  give  away  his  rights  against  Cridler  on  it 
as  freely  as  he  might  give  or  sell  his  horse  or  land. 

Illustrations.  Practical  importance  of  rule  that  bills 
and  notes  are  transferable. — Section  4.  The  practical  con- 
sequences of  the  rule  that  Commercial  Paper  is  transferable 
can  not  be  overestimated.  For  example,  suppose  Carpenter 
sells  and  transfers  by  deed  his  house  and  lot  to  Cridler,  who 
promises  to  pay  $900  therefor,  giving  Carpenter  a  mem- 
orandum in  writing  of  the  promise  as  follows:  "For  the 
house  and  lot  this  day  sold  me,  I  owe  you  $900.  (Sgd.) 
Dan'l.  F.  Cridler."  It  subsequently  transpires  that  Car- 
penter did  not  own  the  premises,  so  that  Cridler  got  noth- 
ing for  his  promise.  If  Carpenter  sues  Cridler  on  his 
promise,  Cridler  has  a  perfectly  good  defense,  although  he 
made  the  promise  to  pay  $900.  It  would  be  unjust  to  com- 
pel him  to  fulfill  it  when  he  has  not  received  the  land. 
And  even  if  Carpenter  had  sold  his  rights  against  Cridler 
to  a  third  person,  Holden,  who  paid  Carpenter  $900  in 
good  faith  therefor,  knowing  nothing  of  the  fact  that  the 
premises  had  not  belonged  to  Carpenter,  in  a  suit  instituted 
by  Holden  against  Cridler  to  recover  on  his  promise  to 
pay  $900,  Cridler  would  have  the  same  defense  he  had 
when  the  suit  was  brought  by  Carpenter,  and  Holden  could 
recover  nothing.  Unless  Holden  could  get  his  money  back 
from  Carpenter,  Holden  would  be  out  $900. 

But  suppose  Cridler,  instead  of  giving  the  memorandum 
set  out  above  to  Carpenter,  had  given  him  the  instrument 
in  Form  i,  and  that  Carpenter,  as  before,  had  sold  his 
rights  against  Cridler  to  Holden  for  $900  and  transferred 
the  instrument  to  him,  Holden  paying  the  $900  in  good 
faith,  knowing  nothing  of  the  defense  that  Cridler  had 


INTRODUCTION  5 

against  Carpenter  because  he  did  not  own  the  premises 
which  he  purported  to  sell.  Holden  then  sues  Cridler  for 
the  $900.  In  such  a  case  Cridler  has  no  defense  but  must 
pay  Holden  the  $900,  although  he  received  absolutely  noth- 
ing for  the  money.  In  this,  case  Cridler  would  be  out  $900 
unless  he  could  recover  from  Carpenter. 

Why  has  Cridler  a  defense  in  the  last  case  but  not  in 
the  preceding?  In  both  Cridler  received  nothing  for  his 
promise;  in  consequence  he  could  have  successfully  de- 
fended a  suit  brought  by  Carpenter.  In  both  Holden  inno- 
cently paid  Carpenter  $900  for  his  rights  against  Cridler. 
The  distinction  between  the  cases  lies  in  the  difference  be- 
tween the  obligations  assumed  by  Cridler  to  Carpenter.  In 
the  former  case  Cridler's  promise  was  a  simple  promise  de- 
riving its  force  and  effect  from  the  Common  Law;  in  the 
latter  the  instrument  which  Cridler  gave  Carpenter  was 
Commercial  Paper  embodying  an  obligation  the  nature  of 
which  depends,  not  upon  the  common  or  general  law,  but 
upon  the  Mercantile  Law. 

According  to  the  common  or  general  law,  obligations  to 
pay  money  or  debts  are  not  transferable,  but  according  to 
the  Mercantile  Law,  obligations  or  debts  embodied  in  Com- 
mercial Paper  are  transferable.  This  explains  the  two  cases 
we  have  been  discussing.  In  the  first,  Carpenter  could  not 
recover  from  Cridler  the  $900  because  of  the  injustice  of 
compelling  Cridler  to  pay  when  he  had  received  nothing. 
Nor  could  Holden  enforce  Cridler's  promise  even  after  he 
(Holden)  had  paid  $900  for  it  in  perfect  good  faith.  As 
we  have  seen,  Carpenter's  right  against  Cridler  on  his  prom- 
ise was  not  transferable.  All  that  Holden  got  from  Car- 
penter was  a  right  to  enforce  Carpenter's  rights  as  his 
(Carpenter's)  agent.  But  Cridler  had  a  defense  against 


6  THE  LAW  OF  COMMERCIAL  PAPER 

Carpenter.  And  this  defense,  good  against  Carpenter,  is, 
of  course,  good  against  anyone  acting  for  Carpenter  in 
his  behalf  as  his  agent. 

In  the  second  case,  Cridler  gave  Carpenter  a  promise 
embodied  in  a  negotiable  promissory  note — a  transferable 
obligation.  When  Holden  bought  from  Carpenter  the  prom- 
ise of  Cridler,  he  became,  not  a  mere  agent  of  Carpenter, 
but  the  owner  of  the  note.  When  Holden  sued  Cridler 
he  sued  as  the  owner  of  the  promise  he  is  seeking  to  en- 
force. Did  Cridler  make  the  note?  Yes.  Was  the  note  a 
valid  legal  note  in  the  hands  of  Carpenter?  Yes;  Cridler 
intentionally  made  and  delivered  it  to  Carpenter.  Is  there 
any  reason  why  Carpenter  should  not  enforce  it  ?  Yes ;  he 
did  not  own  the  land  he  purported  to  sell,  and  in  conse- 
quence Cridler  got  nothing  for  his  promise.  It  is,  there- 
fore, unjust  for  Carpenter  to  compel  Cridler  to  pay.  Is 
there  any  reason  why  Holden  should  not  be  allowed  to  en- 
force the  promise  ?  No.  Holden  has  become  the  owner  of 
Cridler's  promise  to  pay  $900.  He  purchased  it  in  good 
faith  without  knowledge  of  the  facts  as  to  the  land  from 
Carpenter  who  owned  the  note  and  paid  $900  for  it.  Under 
such  circumstances  there  is  no  injustice  in  permitting 
Holden  to  exercise  the  legal  rights  he  has  bought  inno- 
cently. 

That  the  difference  in  Holden's  position  in  these  two 
cases  depends  upon  the  fact  that  the  Commercial  Paper  obli- 
gation is  transferable,  and  that  the  Common  Law  obligation 
is  not,  is  made  more  clear  by  the  following  case :  Cridler  is 
induced  by  fraud  and  deceit  to  sell  his  horse  to  Carpenter, 
who  in  turn  sells  the  horse  to  Holden,  who  pays  full  value 
for  it,  and  knows  nothing  of  the  fraud.  Cridler  sues 
Holden  to  recover  the  horse.  He  cannot  recover  because 
horses  are  transferable  and  by  the  intentional  delivery  Car- 


INTRODUCTION  7 

penter  became  the  owner.  The  sale  by  Carpenter  to 
Holden  transferred  the  ownership  to  the  latter.  Since 
Holden  acquired  the  ownership  innocently  and  for  value, 
there  is  no  reason  in  justice  why  he  should  be  compelled 
to  relinquish  it  to  Cridler.  Of  course,  Cridler  could  have 
recovered  the  horse  from  Carpenter  so  long  as  it  re- 
mained in  his  possession,  for  even  though  Carpenter  had 
become  the  owner  by  the  intentional  delivery  from  Cridler, 
still  obviously  justice  would  require  him  to  restore  the  horse 
to  the  party  from  whom  he  had  secured  it  by  fraud. 

This  discussion  has  shown  the  practical  importance  of 
the  rule  of  Mercantile  Law  which  gives  Commercial  Paper 
its  quality  of  trans ferability.  It  now  remains  to  consider 
another  attribute  which  together  with  that  of  transfer- 
ability  completes  the  usefulness  of  Commercial  Paper  as 
a  medium  of  exchange  and  of  credit. 

Bills  and  notes  differ  from  Common  Law  debts  not  only 
in  being  transferable,  but  in  that  they  are  transferred  by 
a  mere  change  in  possession. — Section  5.  We  have  seen 
that  the  obligation  embodied  in  Commercial  Paper,  although 
unlike  Common  Law  obligations  or  debts,  is  like  tangible 
property,  e.  g.,  horses  and  land,  in  that  it  is  transferable. 
But  Commercial  Paper  also  differs  from  other  transferable 
property  in  the  way  in  which  it  is  transferred.  The  usual 
mode  of  transferring  title  to  goods  is  by  a  voluntary  de- 
livery, i.  e.,  voluntary  actual  transfer  of  the  goods,  coupled 
with  the  intention  to  make  the  transferee  the  owner.  The 
common  mode  of  transferring  land  is  by  a  voluntary  de- 
livery of  a  deed  with  an  intention  to  vest  title  in  the  grantee. 
Thus  a  mere  delivery,  i.  e.,  an  involuntary  change  in  the 
actual  possession  of  the  goods  or  of  the  deed  without  an 
intention  to  pass  title,  would  be  ineffective.  For  example, 
A,  with  force  and  without  X's  consent,  takes  X's  horse  out 


8          THE  LAW  OF  COMMERCIAL  PAPER 

of  his  possession,  i.  e.,  steals  it.  The  physical  act  of  de- 
livery is  just  as  complete  as  if  X  had  given  his  consent 
to  the  transfer  of  possession,  but  A  does  not  become  the 
owner  because  the  necessary  element  of  intention  is  absent. 
The  same  would  be  true  if  A  stole  from  X  a  deed  reciting 
a  transfer  of  the  land  to  A.  But  the  obligation  embodied 
in  Commercial  Paper  differs  quite  as  completely  in  the  man- 
ner of  its  transfer  from  other  kinds  of  transferable  prop- 
erty, as  it  does  from  the  ordinary  Common  Law  debt  or 
obligation  to  pay  money,  in  being  transferable  at  all.  Com- 
mercial Paper  is  transferable  by  a  mere  transfer  of  the 
instrument,  whether  voluntary  or  involuntary,  intentional 
or  unintentional.  Thus,  if  X  owned  a  note  and  A  stole 
it  from  X,  the  title  of  the  note  would  vest  in  A.  Of  course 
A  would  not  be  allowed  to  enforce  the  obligation,  and  would 
be  compelled  to  return  the  note  to  X,  but  this  is  because 
of  the  manifest  injustice  of  allowing  him  to  keep  it  or  as- 
sert his  right  upon  it,  not  because  he  has  not  become  the 
owner.  In  consequence,  if  A,  the  thief,  sells  the  note  to 
B,  who  knows  nothing  of  the  theft,  B,  having  become  the 
owner  for  value  and  without  notice,  may  exercise  the  rights 
of  ownership  he  has  acquired  from  A,  by  holding  and  col- 
lecting it,  or  further,  transferring  it.  Contrast  this  with  a 
case  where  A  steals  X's  horse,  and  then  sells  the  horse  to 
B,  who  is  innocent  of  the  theft.  Here  B,  notwithstanding 
his  innocence  and  the  fact  that  he  paid  a  full  price  to  A, 
has  no  rights  whatever  in  the  horse.  The  reason  is  obvious : 
A  by  the  theft  of  the  horse  did  not  become  the  owner; 
the  transfer  of  possession  from  X  to  A,  the  delivery,  was 
involuntary  and  not  coupled  with  an  intention  on  X's  part 
to  make  A  owner.  The  horse  never  became  the  property 
of  A,  and  B  could  not  become  the  owner  by  a  transfer  from 
A,  to  whom  the  property  did  not  belong. 

Summary. — Section  6.    Bills  of  exchange  and  promissory 


INTRODUCTION  9 

notes,  then,  differ  from  Common  Law  obligations  to  pay 
money  in  that  bills  and  notes  are  transferable.  They  differ 
from  other  kinds  of  transferable  property,  as  goods  and 
land,  in  that  they  are  transferable  by  an  involuntary  de- 
livery or  change  of  possession.  These  two  qualities  are 
what  give  Commercial  Paper  the  name  of  negotiable  in- 
struments. In  their  character  as  negotiable  instruments 
they  are  like  money,  and  it  is  their  similarity  to  money 
which  makes  them  of  so  much  practical  value  in  the  busi- 
ness world. 

History  of  Mercantile  Law. — Section  7.  We  may  well 
pause  at  this  point  to  answer  the  question,  "What  is  this 
Law  Merchant,  or  Mercantile  Law,  which  differs  so  rad- 
ically in  its  rules  with  respect  to  Commercial  Paper  from 
the  common  or  general  law  of  obligations  to  pay  money 
or  debts?"  If  we  answer  that  it  is  simply  a  statement  or 
formulation  of  the  customary  way  in  which  business  men 
deal  with  Commercial  Paper,  the  question  remains,  "How 
did  the  usage  of  merchants  come  to  be  enforced  in  the 
courts  side  by  side  with  the  common  or  general  law?" 

Scrutton  in  his  "Elements  of  Mercantile  Law"  (Chapter 
I)  outlines  the  history  of  the  Law  Merchant  and  its  transi- 
tion into  law  as  follows: 

"If  you  read  the  law  reports  of  the  seventeenth  century 
you  will  be  struck  with  one  very  remarkable  fact:  either 
Englishmen  of  that  day  did  not  engage  in  commerce,  or 
they  appear  not  to  have  been  litigious  people  in  commer- 
cial matters,  each  of  which  alternatives  appears  improb- 
able. But  it  is  a  curious  fact  that  one  finds  in  the  reports 
of  that  century,  two  hundred  years  ago,  hardly  any  com- 
mercial cases.  If  one  looks  up  the  Law  of  Bills  of  Ex- 
change, 'the  cases  on  the  subject  are  comparatively  few  and 
unimoortant  till  the  time  of  Lord  Mansfield/  . 


io         THE  LAW  OF  COMMERCIAL  PAPER 

"The  reason  why  there  were  hardly  any  cases  dealing 
with  commercial  matters  in  the  Reports  of  the  Common 
Law  Courts  is  that  such  cases  were  dealt  with  by  special 
courts  and  under  a  special  law.  That  law  was  an  old  es- 
tablished law  and  largely  based  on  mercantile  customs.  .  .  . 

"Now  if  we  follow  the  growth  of  this  Law  Merchant  or 
Mercantile  Law,  which  was  two  hundred  years  ago  so  dis- 
tinct from  the  Common  Law,  we  find  it  in  England  going 
through  three  stages  of  development.  The  first  stage  may 
be  fixed  as  ending  at  the  appointment  of  Coke  as  Lord 
Chief  Justice  in  the  year  1606,  and  before  that  time  you 
will  find  the  Law  Merchant  as  a  special  law  administered  by 
special  courts  for  a  special  class  of  people. 

"In  the  first  place,  as  to  the  special  courts.  The  greater 
part  of  the  foreign  trade  of  England,  and  indeed  of  the 
whole  of  Europe  at  that  time,  was  conducted  in  the  great 
fairs,  held  at  fixed  places  and  fixed  times  in  each  year,  to 
which  merchants  of  all  countries  came;  fairs  very  similar 
to  those  which  meet  every  year  at  the  present  time  at 
Novgorod  in  Russia,  and  at  other  places  in  the  East.  In 
England,  also,  there  were  then  the  great  fairs  of  Win- 
chester and  Stourbridge,  and  the  fairs  of  Besancon  and 
Lyons  in  France,  and  in  each  of  those  fairs  a  court  sat 
to  administer  speedy  justice  by  the  Law  Merchant  to  the 
merchants  who  congregated  in  the  fairs,  and  in  case  of 
doubt  and  difficulty,  to  have  that  law  declared  on  the  basis 
of  mercantile  customs  by  the  merchants  who  were  present. 
You  will  find  this  court  mentioned  in  the  old  English  law 
books  as  the  Court  Pepoudrous,  so  called  because  justice 
was  administered  while  the  dust  fell  from  the  feet,  so 
quick  were  the  courts  supposed  to  be.  'This  court  is  inci- 
dent to  every  fair  and  market  because  that  for  contracts 
and  injuries  done  concerning  the  fair  or  market  there  shall 
be  as  speedy  justice  done  for  advancement  of  trade  and 
traffic  as  the  dust  can  fall  from  the  feet,  the  proceeding 


INTRODUCTION  n 

there  being  de  hora  in  horam  (from  hour  to  hour)/  In- 
deed, so  far  back  as  Bracton  in  the  thirteenth  century,  it 
had  been  recognized  that  there  were  certain  classes  of 
people  'who  ought  to  have  swift  justice,  such  as  merchants, 
to  whom  justice  is  given  in  the  Court  Pepoudrous.'  The 
records  of  these  courts  are  few,  for  obviously  in  courts  for 
rapid  business  law  reporters  were  rather  at  a  discount.  As 
a  consequence,  'there  is  no  part  of  the  history  of  English 
law  more  obscure  than  that  connected  with  the  maxim 
that  the  Law  Merchant  is  part  of  the  law  of  the  land.'  We 
are,  however,  fortunate  enough  to  have  one  or  two  records 
of  the  Courts  of  the  Fairs.  The  Selden  Society  has  suc- 
ceeded in  unearthing  the  Abbott's  roll  of  the  fair  of  St.  Ives 
held  in  1275  and  1291,  containing  a  series  of  cases  which 
show  how  the  merchants  administered  the  Law  Merchant 
in  the  Courts  of  the  Fair,  and  why  such  cases  did  not  come 
into  the  King's  Court.  For  instance,  'Thomas,  of  Wells, 
complains  of  Adam  Garsop  that  he  unjustly  detains  and 
deforces  from  him  a  coffer  which  the  said  Adam  sold  to 
him  on  Wednesday  next  after  Mid  Lent  last  past  for  six- 
pence, whereof  he  paid  to  the  said  Adam  two  pence  and 
a  drink  in  advance*  (it  appears  to  have  been  a  very  good 
mercantile  custom,  to  *wet  a  bargain/  and  the  drink  was 
a  matter  to  which  great  importance  was  attached  by  the 
merchants  present)  ;  'and  on  the  Octave  of  Easter  came 
and  would  have  paid  the  rest,  but  the  said  Adam  would  not 
receive  it  nor  answer  for  the  said  coffer,  but  detained  it  un- 
conditionally to  his  damage  and  dishonor,  2s.,  and  he  pro- 
duces suit.  The  said  Adam  is  present  and  does  not  de- 
fend. Therefore,  let  him  make  satisfaction  to  the  said 
Thomas  and  be  in  mercy  for  the  unjust  detainer;  fine  6d. ; 
pledge  his  overcoat/  The  next  defendant  was  not  so  for- 
tunate as  to  have  an  overcoat.  'Reginald  Picard  of  Stam- 
ford came  and  confessed  by  his  own  mouth  that  he  sold 
to  Peter  Redhood  of  London  a  ring  of  brass  for 


12         THE  LAW  OF  COMMERCIAL  PAPER 

saying  that  the  said  ring  was  of  the  purest  gold,  and  that 
he  and  a  one-eyed  man  found  it  on  the  last  Sunday  in  the 
churchyard  of  St.  Ives,  near  the  cross.'  (One  fancies  one 
has  heard  that  tale  about  the  brass  ring  before.)  There- 
fore it  is  considered  that  the  said  Reginald  do  make  satis- 
faction to  the  said  Peter  for  the  5^  d.  and  be  in  mercy 
for  the  trespass;  he  is  poor;  pledge  his  body.'  The  next 
case  introduces  the  Law  Merchant.  'Nicholas  Legge  com- 
plains of  Nicolas  of  Mildenhall  for  that  unjustly  he  im- 
pedes him  from  having,  according  to  the  usage  of  mer- 
chants, part  in  a  certain  ox  which  Nicolas  of  Mildenhall 
bought  in  his  presence  in  the  village  of  St.  Ives  on  Mon- 
day last  past  to  his  damage  2s.,  whereas  he  was  ready  to 
pay  half  the  price,  which  price  was  2s.  6d.  And  Nicolas 
of  Mildenhall  defends,  and  says  that  the  Law  Merchant 
does  well  allow  that  every  merchant  may  participate  in 
a  bargain  in  the  butcher's  trade  if  he  claim  a  part  thereof 
at  the  time  of  the  sale ;  but  to  prove  that  the  said  Nicholas 
Legge  was  not  present  at  the  time  of  the  purchase  nor 
claimed  a  part  thereof  he  is  ready  to  make  law.'  Then 
they  went  to  the  proof.  The  custom  of  the  Law  Merchant 
relied  on  admitted  any  merchant  standing  by  to  claim  a 
share  in  any  bargain  on  paying  a  share  of  the  price.  The 
defense  is,  'You  were  not  there,  so  you  cannot  claim/  The 
next  and  last  case  is  one  which  puzzled  the  court,  and, 
therefore,  I  omit  the  details,  but  it  is  recited  in  the  Abbott's 
roll:  'And  the  case  is  respited  till  it  shall  be  more  thor- 
oughly discussed  by  the  merchants.  And  the  merchants 
of  the  various  commonalties  and  others  being  convoked  in 
full  court  it  is  considered' — and  then  they  go  on  to  dis- 
cuss it.  There  you  see  the  Merchant's  Court  at  work,  giv- 
ing quick  justice  in  all  mercantile  disputes,  and  in  cases 
of  doubt  calling  upon  the  merchants  present  to  declare  what 
the  Law  Merchant  is.  So  much  for  the  fairs. 

"In  most  seaport  towns  also  you  will  find  a  similar  court 


INTRODUCTION  13 

dealing  with  cases  arising  out  of  ships.  In  the  Domesday 
Book  of  Ipswich  it  is  stated,  'The  pleas  between  strange 
folk  that  men  call  'pypoudrous'  should  be  pleaded  from  day 
to  day.  The  pleas  in  time  of  fair  between  stranger  and 
passer  should  be  pleaded  from  hour  to  hour,  as  well  in  the 
forenoon  as  in  the  afternoon,  and  that  is  to  wit  of  plaints 
begun  in  the  same  time  of  fair,  and  the  pleas  given  to  the 
law  marine  for  strange  mariners  passing,  and  for  them  that 
abide  not  but  their  tide,  should  be  pleaded  from  tide  to  tide/ 
Any  ship  coming  into  the  port  of  Ipswich  with  a  dispute 
about  its  Charter  Party  or  Bill  of  Lading  may  get  sum- 
mary justice  at  once  from  this  Court  of  Ipswich  between 
tide  and  tide.  Stress  may  be  laid  on  the  fact  that  the 
Courts  sat  in  the  afternoon,  because  at  that  time  the  King's 
Courts  only  sat  from  eight  in  the  morning  till  eleven  and 
then  adjourned  for  the  rest  of  the  day.  'For  in  the  after- 
noons these  courts  are  not  holden.  But  the  suitors  then 
resort  to  the  perusing  of  their  writings,  and  elsewhere  con- 
sulting with  the  serjeants-at-law  and  other  their  counsel- 
ors/ so  that  the  time  taken  up  in  consultation  by  '•he 
Courts  in  London  was  taken  up  by  the  Courts  at  Ipswich 
in  dealing  summarily  with  cases,  and  letting  the  strange 
mariners  go  who  were  only  waiting  for  their  tide. 

"There  were  special  courts  by  statute,  of  which  a  num- 
ber of  'grave  and  discreet  merchants*  were  necessary  mem- 
bers, in  order  that  the  Mercantile  Law  founded  on  the 
custom  of  merchants  might  be  duly  applied  to  the  case  be- 
fore them.  The  law  which  these  courts  administered  was 
what  was  called  by  merchants  the  Law  Merchant  and  Law 
of  the  Sea,  and  it  was  common  to  nearly  every  European 
country.  Much  of  it  was  to  be  found  in  a  series  of  Codes 
of  Sea  Laws,  such  as  the  Laws  of  Oleron  and  Wisbury, 
and  the  Consolato  del  Mare,  embodying  the  customs  and 
practices  of  merchants  of  different  countries,  and  it  was 
not  the  Common  Law  of  England.  Further,  it  was  only  for 


14         THE  LAW  OF  COMMERCIAL  PAPER 

a  particular  class.  You  had  to  show  yourself  to  be  a 
merchant  before  you  got  into  the  Mercantile  Court ;  and  un- 
til about  two  hundred  years  ago  it  was  still  necessary  to 
show  yourself  to  be  a  merchant  in  the  Common  Law  Courts 
before  you  could  get  the  benefit  of  the  Law  Merchant. 

"Now  the  second  stage  of  development  of  the  Law  Mer- 
chant may  be  dated  from  Lord  Coke's  taking  office  in  1606, 
and  lasts  until  the  time  when  Lord  Mansfield  became  Chief 
Justice  in  1756,  and  during  that  time  the  peculiarity  of  its 
development  is  this:  That  the  special  courts  die  out,  and 
the  Law  Merchant  is  administered  by  the  King's  Courts 
of  Common  Law,  but  it  is  administered  as  a  custom  and 
not  as  law,  and  at  first  the  custom  only  applies  if  the  plain- 
tiff or  defendant  is  proved  to  be  a  merchant.  In  every  ac- 
tion on  a  Bill  of  Exchange  it  was  necessary  formally  to 
plead  secundum  usum  et  consuetudinem  Mercatorum — 
according  to  the  use  and  the  custom  of  merchants;  and  it( 
was  sometimes  pleaded  that  the  plaintiff  was  not  a  mer- 
chant but  a  gentleman.  And  as  the  Law  Merchant  was  con- 
sidered as  custom,  it  was  the  habit  to  leave  the  custom  and 
the  facts  to  the  jury  without  any  directions  in  point  of 
law,  with  a  result  that  cases  were  rarely  reported  as  laying 
down  any  particular  rule  because  it  was  almost  impossible 
to  separate  the  custom  from  the  facts ;  as  a  result  little  was 
done  towards  building  up  any  system  of  Mercantile  Law 
in  England. 

"The  construction  of  that  system  began  with  the  acces- 
sion of  Lord  Mansfield  to  the  Chief  Justiceship  of  the 
King's  Bench  in  1756,  and  the  result  of  his  administra- 
tion of  the  law  in  the  courts  for  thirty  years  was  to  build 
up  a  system  of  law  as  part  of  the  Common  Law,  embodying 
and  giving  form  to  the  existing  custom  of  merchants. 
When  he  retired,  after  his  thirty  years  of  office,  Mr.  Justice 
Buller  paid  a  great  tribute  to  the  service  that  he  had  done. 
In  giving  judgment  in  Lickbarrow  v.  Mason,  he  said : 


INTRODUCTION  15 

'Thus  the  matter  stood  till  within  these  thirty  years.  Since 
that  time  the  Commercial  Law  of  this  country  has  taken 
a  very  different  turn  from  what  it  did  before.  Lord  Hard- 
wicke  himself  was  proceeding  with  great  caution,  not  estab- 
lishing any  general  principle,  but  decreeing  on  all  the  cir- 
cumstances put  together.  Before  that  period  we  find  in 
Courts  of  Law  all  the  evidence  in  mercantile  cases  was 
thrown  together;  they  were  left  generally  to  the  jury,  and 
they  produced  no  established  principle.  From  that  time  we 
all  know  the  great  study  there  has  been  to  find  some  cer- 
tain general  principle,  not  only  to  rule  the  particular  case 
under  consideration,  but  to  serve  as  a  guide  for  the  future. 
Most  of  us  have  heard  those  principles  stated,  reasoned 
upon,  enlarged,  and  explained  till  we  have  been  lost  in 
admiration  at  the  strength  and  stretch  of  the  human  under- 
standing, and  I  should  be  sorry  to  find  myself  under  the 
necessity  of  differing  from  Lord  Mansfield,  who  may  truly 
be  said  to  be  the  founder  of  the  Commercial  Law  of  this 
country.'  Lord  Mansfield,  with  a  Scotch  training,  was  not 
too  favourable  to  the  Common  Law  of  England,  and  he 
derived  many  of  the  principles  of  Mercantile  Law  that  he 
laid  down  from  the  writings  of  foreign  jurists,  as  embody- 
ing the  custom  of  merchants  all  over  Europe.  For  instance, 
in  his  great  judgment  in  Luke  v.  Lyde,  which  raised  a  ques- 
tion of  the  freight  due  for  goods  lost  at  sea,  he  cited  the 
Roman  Pandects,  the  Consolato  del  Mare,  laws  of  Wis- 
bury  and  Oleron,  two  English  and  two  foreign  mercantile 
writers,  and  the  French  Ordinances,  and  deduced  from  them 
the  principle  which  has  since  been  part  of  the  Law  of  Eng- 
land. While  he  obtained  his  legal  principles  from  those 
sources,  he  took  his  customs  of  trade  aijd  his  facts  from 
Mercantile  Special  Juries,  whom  he  very  carefully  directed 
on  the  law,  and  Lord  Campbell  in  his  life  of  Lord  Mansfield 
has  left  an  account  of  Lord  Mansfield's  procedure.  He  says  : 


16         THE  LAW  OF  COMMERCIAL  PAPER 

'Lord  Mansfield  reared  a  body  of  special  jurymen  at  Guild- 
hall, who  were  generally  returned  on  all  commercial  cases 
to  be  tried  there.  He  was  on  terms  of  the  most  familiar 
intercourse  with  them,  not  only  conversing  freely  with 
them  in  court,  but  inviting  them  to  dine  with  him.  From 
them  he  learned  the  usages  of  trade,  and  in  return  he  took 
pains  in  explaining  to  them  the  principles  of  jurisprudence 
by  which  they  were  to  be  guided.  Several  of  these  gentle- 
men survived  when  I  began  to  attend  Guildhall  as  a  student, 
and  were  designated  and  honored  as  "Lord  Mansfield's 
jurymen."  One  in  particular  I  remember,  Mr.  Edward 
Vaux,  who  always  wore  a  cocked  hat,  and  had  almost  as 
much  authority  as  the  Lord  Chief  Justice  Himself/ 

"Since  the  time  of  Lord  Mansfield  other  judges  have 
carried  on  the  work  that  he  began,  notably  Abbott,  Lord 
Chief  Justice,  afterward  Lord  Tenterden,  the  author  of 
*  Abbott  on  Shipping';  Mr.  Justice  Lawrence,  and  the  late 
Mr.  Justice  Willes;  and  as  the  result  of  their  labors  the 
English  Law  is  now  provided  with  a  fairly  complete  code 
of  mercantile  rules." 

Mercantile  Law  adopted  in  United  States. — Section  8. 
From  this  outline  it  is  clear  that  the  Law  Merchant  af- 
fecting Commercial  Paper  was  part  of  the  law  of  England 
before  the  independence  of  the  American  Colonies,  and  has 
for  the  most  part  been  adopted  in  bulk  from  the.  English 
law  into  the  law  of  the  several  states  of  the  United  States. 

Bills  of  Exchange  Act,  1882. — Section  9.  Until  1882  in 
England,  and  until  later  in  the  United  States,  the  law  of 
Commercial  Paper  could  only  be  found  in  the  reports  of 
decisions  of  the  courts.  It  was  not  set  out  authoritatively 
in  any  form  easy  of  access. 

"In  1882  the  British  Parliament  passed  an  act  entitled 


INTRODUCTION  17 

'An  Act  to  codify  the  law  relating  to  Bills  of  Exchange, 
Cheques,  and  Promissory  Notes/  better  known  by  its  au- 
thorized short  title  as  the  'Bills  of  Exchange  Act,  1882.' 
This  act  is,  with  certain  exceptions,  declaratory  of  the  com- 
mon law  of  England,  or  rather  of  the  Law  Merchant,  as 
expounded  by  the  authority  of  English  law.  The  bill  was 
drawn  by  Judge  Chalmers,  author  of  the  excellent  Digest 
of  the  law  of  bills,  notes,  and  checks,  an  acknowledged  ex- 
pert on  the  subject,  and  submitted  to  recognized  authori- 
ties on  English  Commercial  Law  and  practice  and  finally 
settled  by  strong  committees  in  Parliament.  And  so  the  act 
may  be  regarded  for  the  main  part  and  so  far  as  the  propo- 
sitions contained  in  it  are  directly  applicable  as  an  authori- 
tative declaration,  under  the  sanction  of  the  legislature,  of 
the  English  law.  The  act  was  not  intended  to  be  merely  a 
code  of  existing  law.  It  was  designed  to  alter  and  did  alter 
the  law  in  some  respects.  The  act  has  been  adopted  by  two- 
thirds  of  the  total  number  of  the  various  colonies  and  de- 
pendencies of  the  British  Empire  and  by  all  the  most  im- 
portant of  them,  but  not  without  changes  which,  though 
trifling  in  themselves,  are  destructive  of  complete  uni- 
formity." 

Negotiable  Instruments  Law  in  United  States. — Section 
10.  In  the  United  States  "The  desirability,  if  not  the  abso- 
lute necessity,  cff  uniform  laws  relating  to  commercial  pa- 
per had  long  been  apparent  to  lawyers  and  laymen.  The 
situation  induced  by  conflicting  decisions  and  statutes  em- 
barrassed business  and  interrupted  that  free  circulation  of 
Commercial  Paper  which  is  its  distinguishing  character- 
istic." .  .  . 

"At  the  suggestion  of  the  American  Bar  Association,  and 
through  its  cooperation,  commissioners  for  the  promotion 
of  uniformity  of  legislation  in  the  United  States  were  from 


i8         THE  LAW  OF  COMMERCIAL  PAPER 

time  to  time  appointed  by  the  several  states.  In  1895  twen- 
ty-seven states  had  appointed  such  commissioners,  and  in 
August  of  that  year  the  commissioners  met  in  conference 
at  Detroit,  Michigan, — nineteen  states  being  represented  in 
the  conference.  At  that  conference  a  resolution  was  adopted 
requesting  the  committee  on  Commercial  Law  to  procure 
as  soon  as  practicable  a  draft  of  a  bill  relating  to  Commer- 
cial Paper,  based  on  the  English  statute  on  that  subject  and 
on  such  other  sources  of  information  as  the  committee 
might  deem  proper  to  consult.  The  matter  was  referred 
to  a  subcommittee  consisting  of  Lyman  D.  Brewster,  of 
Connecticut,  Henry  C.  Willcox,  of  New  York,  and  Frank 
Bergen,  of  New  Jersey.  The  subcommittee  employed  Mr. 
John  J.  Crawford  of  New  York,  who  had  made  a  special 
study  of  the  law  relating  to  Commercial  Paper,  to  make 
a  draft  of  the  proposed  law.  The  draft  was  prepared  by 
Mr.  Crawford  and  submitted  to  the  conference  of  com- 
missioners which  met  at  Saratoga  in  August,  1896.  The 
commissioners  in  attendance,  being  twenty-seven  in  all  and 
representing  fourteen  different  states,  went  over  the  draft, 
section  by  section,  making  amendments  therein,  most  of 
which  were  changes  in  the  existing  law  which  Mr.  Crawford 
had  not  felt  at  liberty  to  incorporate  into  the  original  draft. 
.  .  .  This  statute  presents  within  narrow  compass  the  law 
of  negotiable  bills  of  exchange,  promissory  notes,  and  checks. 
It  is  the  result  of  two  purposes;  the  first  and  controlling 
purpose  was  to  make  the  law  uniform,  and  whatever 
changes  were  necessary  to  be  made  to  accomplish  that 
purpose  were  accordingly  made.  The  second  purpose  was 
to  preserve  the  law  as  nearly  as  possible  as  it  then  existed. 
The  work  was  committed  to  competent  and  experienced  per*- 
sons,  well  versed  in  the  law  relating  to  the  subject.  They 
were  aided  by  the  able  work  of  those  to  whom  had  been 
entrusted  the  preparation  of  the  Bills  of  Exchange  Act. 
These  facts  are  a  guaranty  that  we  have  in  the  negotiable 


INTRODUCTION  19 

instruments  law  the  legislative  expression  of  the  law  there- 
tofore determined  by  the  courts,  through  a  long  series  of 
years  and  in  a  multitude  of  decisions,  barring,  of  course, 
those  conflicting  decisions  and  diverse  statutes  which  had 
led  to  embarrassment  and  confusion  in  the  administration  of 
the  law  of  Commercial  Paper.  It  may  be  said  probably 
without  serious  question  that,  in  the  enactment  of  this 
statute,  no  essential  features  of  the  law  of  negotiable  instru- 
ments as  theretofore  determined  have  been  eliminated. 
What  business  needs  is  fixed  and  uniform  rules  to  govern 
Commercial  Paper.  Such  rules  are  now  to  be  found  in  the 
negotiable  instruments  law."  (Bunker,  "Negotiable  In- 
struments Law,"  Introduction.) 

This  statute,  known  as  the  Negotiable  Instruments  Law, 
was  passed  by  the  legislature  of  the  state  of  New  York  in 
1897.  The  Law  has  been  adopted  without  substantial 
change  in  the  District  of  Columbia  and  forty-four  states, 
territories,  and  dependencies  of  the  United  States,  a  list  of 
which,  indicating  the  year  of  adoption,  follows : 

Alabama  (1907) 

Arizona   (1901) 

Arkansas  (1913) 

Colorado   (1897) 

Connecticut   (1897) 

District  of  Columbia  (1899) 

FlorWa  (1897) 

Hawaii    (1907) 

Idaho   (1903) 

Illinois  (1907) 

Indiana    (1913) 

Iowa    (1902) 

Kansas   (1905) 

Kentucky  (1904) 

Louisiana  (1904) 


20         THE  LAW  OF  COMMERCIAL  PAPER 

Maryland  (1898) 
Massachusetts   (1898) 
Michigan  (1905) 
Minnesota  (1913) 
Missouri   (1905) 
Montana  (1903) 
Nebraska   (1905) 
Nevada   (1907) 
New   Jersey    (1902) 
New  Hampshire  (1909) 
New  Mexico  (1907) 
New  York   (1897) 
North   Carolina   (1899) 
North  Dakota  (1899) 
Ohio  (1902) 
Oklahoma  (1909) 
Oregon  (1899) 
Pennsylvania   (1901) 
Rhode  Island   (1899) 
South  Carolina  (1914) 
South  Dakota  (1913) 
Tennessee  (1899) 
Utah  (1899) 
Vermont   (1912) 
Virginia    (1897-8) 
Washington    (18^9) 
West  Virginia  (1907) 
Wisconsin   (1899) 
Wyoming   (1905) 


CHAPTER  II 

FORMAL    REQUIREMENTS    OF    COMMERCIAL    PAPER 

Section  1675-1  of  the  Negotiable  Instruments  Law  pre- 
scribes formal  requisites  of  bills  and  notes. — Section  n. 
We  have  said  that  there  are  only  two  kinds  of  Commercial 
Paper,  the  negotiable  promissory  note  and  the  negotiable 
bill  of  exchange.  Forms  i  and  2  have  been  referred  to 
in  Section  i  as  the  usual  or  ordinary  forms  of  bills  and 
notes.  But  the  almost  endless  variety  of  forms  which  such 
instruments  may  take  and  still  be  notes  or  bills  makes 
it  necessary  to  analyze  their  language  with  care  in  order 
to  determine  what  are  the  exact  formal  requirements  of  a 
promissory  note  and  bill  of  exchange.  This  the  Negotiable 
Instruments  Law  does  in  §  i.  (Read  and  study.)1  Let 
us  take  up  each  of  the  given  requirements  one  by  one. 

Materials  for  writing. — Section  12. 

"An  instrument  to  be  negotiable  .  .  .  must  be  in  writ- 
ing.'' Daniel  in  his  work  on  "Negotiable  Instruments"  says : 

"As  to  the  material  upon  which  negotiable  instruments 
should  be  written,  it  does  not  appear  to  be  necessary  that 
the  substance  should  be  paper.  It  is  conceived  that  they 
might  be  written  on  parchment,  cloth,  leather,  or  any  other 
convenient  substitute  for  paper.  Whether  a  valid  bill  or 
note  may  be  written  upon  metal,  stone,  or  wood  does  not 

1  References  to  the  Negotiable  Instruments  Law  in  the  text  refer  to 
the  Illinois  Act,  pp.  192-238. 

21 


THE  LAW  OF  COMMERCIAL  PAPER 

seem  to  have  been  decided ;  but  if  it  were  distinctly  proven 
that  the  instrument  was  intended  as  a  bill  or  note,  the 
substance  could  be  no  objection  to  its  validity.  But  it  is, 
of  course,  entirely  out  of  the  usual  course  of  business; 
and  it  must  rarely,  if  ever,  occur  that  such  a  question  is 
presented.  Certainly,  the  courts  would  look  with  suspi- 
cion upon  so  peculiar  an  instrument;  and  its  unusual  form 
would,  in  itself,  be  a  warning  to  all  purchasers  that  they 
took  it  at  their  peril."  (Vol.  I,  p.  97,  §  77.) 

"The  writing  may  be  executed  by  any  instrument  or  tool 
sufficient  for  the  purpose.  Pen  and  ink  are,  of  course,  ordi- 
narily used,  but  a  writing  in  pencil  is  permissible,  although 
not  advisable.  An  instrument,  every  part  of  which,  includ- 
ing the  signature,  is  typewritten,  or  is  printed,  or  one  on 
which  the  signature  is  stamped,  is  perfectly  valid.  The 
practical  disadvantage  of  typewritten  and  pencil  instruments 
and  signatures  is  their  easy  obliteration  and  alteration. 
Printed  and  stamped  signatures,  while  not  open  to  this 
objection,  are  more  difficult  to  prove  than  a  signature  in 
the  handwriting  of  the  signer."  Bills  and  Notes,  Pope's 
Encyclopedia  of  Law,  Vol.  VIII. 


A  note  must  contain  a  promise. — Section  13.  The 
second  subdivision  of  §  I  provides  that  the  instrument 
"must  contain  an  unconditional  promise  or  order."  If  the 
instrument  is  a  note,  it  must  contain  a  promise;  if  a  bill 
of  exchange,  an  order.  First,  what  is  a  promise?  The 
usual  form  of  promissory  note  reads  "I  promise  to  pay"  (see 
Form  i).  There  can  be,  therefore,  no  question  about  its 
sufficiency.  But  it  is  not  necessary  to  use  the  word  promise. 
For  example,  the  following  instrument  contains  a  promise 
and  is  a  negotiable  promissory  note: 


REQUIREMENTS  OF  COMMERCIAL  PAPER        23 

NATHANIEL  O.  WINSLOW,  Cr. 

By  labor  16^4  days  at  $4  per  day, 
$67. 

Good  to  bearer. 

(Sgd.)  WM.  VANNAH. 

(Hussey  v.  Winslow,  59  Me.  Reports  170.)  The  court 
said:  "It  would  seem  that  the  only  possible  construction 
which  can  be  given  to  this  instrument  is,  substantially, 
this:  In  consideration  of  16^4.  days'  labor,  performed  by 
Nathaniel  O.  Winslow,  at  $4  per  day,  amounting  to  $67.00, 
I  promise  to  pay  him,  or  bearer  that  sum  on  demand. 
Signed,  William  Vannah.  Here  we  have  every  element 
of  a  negotiable  promissory  note ;  a  maker,  a  payee,  a  prom- 
ise or  engagement  to  pay  a  certain  sum  of  money  at  a  speci- 
fied time,  absolutely  and  unconditionally,  and  the  word 
'bearer*  to  make  it  negotiable." 

44  Due  bill"  or  written  acknowledgment  of  a  debt  not 
a  note. — Then  why  is  not  the  memorandum  in  Section  4 
of  the  first  chapter  a  promissory  note?  The  reason  is  that, 
although  it  states  that  Cridler  owes  Carpenter  $900,  there 
is  no  promise  in  the  instrument  by  Cridler  to  pay.  Nor  is 
the  admission  equivalent  to  a  promise.  7  admit  I  owe  you 
$100  or  7  owe  you  $100  cannot  be  read  I  promise  to  pay  you 
$100.  Of  course,  if  I  did  owe  you  $100  the  law  would  com- 
pel me  to  pay,  but  this  would  be  because  I  owed  you  the 
money  regardless  of  whether  I  had  promised  to  pay  or 
not.  Examples  of  written  instruments  which  were  held 
not  to  be  notes  for  want  of  a  promise  are  the  following: 


I  owe  my  father  £  100.    (i  Camp.  499) 
Due  Currier  and  Barker,  $17.14  (40  Conn.  349) 
I.  O.  U.,  E.  A.  Gay,  the  sum  of  $17.05  for  value 
received  (151  Mass.  115)?* 


24         THE  LAW  OF  COMMERCIAL  PAPER 

Unless  time  of  payment  is  specified  in  the  instrument. 
— But  if  to  a  written  acknowledgement  of  a  debt  words  indi- 
cating when  payment  of  the  debt  is  to  be  made  are  added, 
the  instrument  may  be  a  promissory  note.  Thus,  if  Crid- 
ler  had  added  to  the  memorandum  referred  to  above 
(Section  4)  to  be  paid  Jan.  i,  1911,  it  would  have  been  a 
promissory  note.  Other  examples  of  this  exception  to  the 
rule  that  a  written  admission  of  indebtedness  is  not  a 
promissory  note  are  the  following: 

(1)  Time  check,  No.  189.  $98.65.  General  Manager's  Office, 
Hawkeye  Gold  Mining  Co.,  Pluma,   So.  Dak.,  June   10, 
1908.    Due  W.  C.  Robinson  the  sum  of  ninety-eight  dol- 
lars and  sixty-five  cents   ($98.65),  payable  at  this  office, 
on  the  20th  day  of  June,  1893,  to  him  or  order.     David 
Hunter,  General  Manager,  by  L.  A.  Fell  (67  N.  W.  618). 

(2)  No.  959.    Mississippi  Union  Bank. 

Jackson  (Miss.),  Feb.  8,  1840.  I  hereby  certify  that 
Hugh  Short  has  deposited  in  this  bank,  payable  twelve 
months  from  1st  May,  1839,  with  5  per  cent  interest  till 
due,  fifteen  hundred  dollars,  for  the  use  of  Henry  Miller, 
and  payable  only  to  his  order  upon  the  return  of  this 
certificate,  $1,500. 

WILLIAM  P.  GRAYSON,  Cashier.     (13  How.  218). 

(3)  Due  John  Allen,  $94.91,  on  demand.     (5  Day  337). 

In  each  of  these  examples  the  words  which  are  in  italics 
were  those  which  made  the  instrument  a  promissory  note. 

Or  the  words  "or  order"  or  "bearer"  are  employed.— 

Another  exception  to  the  rule  that  mere  written  admissions 
of  debts  are  not  promissory  notes  is  this :  If  the  words  or 
order  or  bearer  are  inserted,  the  writings  may  be  negotiable 
promissory  notes.  Thus,  I  owe  Carpenter,  or  bearer,  $ioof 
(Sgd.)  D.  L.  Cridler,  is  a  note.  Another  example  of  such 
a  note  is  the  following : 


REQUIREMENTS  OF  COMMERCIAL  PAPER  -29 

Due  I.  Huyck  or  order  the  sum  of  $3,928,  for  value  received 
of  him,  and  on  settlement  up  to  date. 

(Sgd.)  C.  V.  MEADOR,    (24  Ark.  191). 

We  can  then  state  the  rule  in  this  form.  An  instrument 
to  be  a  promissory  note  must  contain  an  express  promise  or 
words  of  the  same  meaning.  A  bare  admission  of  a  debt 
is  not  a  note  unless  it  specifies  the  time  when  payment  will 
be  made,  or  contains  the  words  "or  order"  or  "bearer,"  in 
either  of  which  cases  the  admission  is  construed  as  im- 
porting a  promise  to  pay. 

A  Mil  must  contain  an  order.— Section  14.  A  bill  of 
exchange  must  contain  an  order  to  pay.  Another  reference 
to  Form  2  shows  how  the  usual  form  of  bill  complies  with 
this  requirement.  The  first  printed  word  in  the  form  is 
"Pay."  It  is  the  imperative  mood  of  the  verb  "to  pay,"  and 
is  a  short  way  of  saying,  "I  order  you  to  pay,"  or  "I  com- 
mand you  to  pay."  An  order  imports  a  right  to  command 
and  a  duty  to  obey.  In  determining  whether  a  direction  is  an 
order,  it  is  of  no  consequence  that  the  person  giving  the 
order  has  no  right  to  command  or  that  the  person  to  whom 
the  order  is  directed  is  under  no  duty.  The  test  is :  Does 
the  direction  on  its  face  import  such  a  right  and  duty?  If 
it  does,  it  is  an  order.  The  words  in  which  the  bill  is 
phrased  are  unimportant  so  long  as  they  amount  to  an 
order. 

Words  of  politeness  in  a  bill. — "It  is  not  necessary  that 
the  words,  literally  taken,  should  be  imperative;  the 
language  may  be  that  of  courtesy  and  politeness  in  form, 
as  often  it  is,  and  yet  be  imperative  in  the  eye  of  the  law. 
Enough  that  the  language  used  is  an  expression  of  the 
drawer's  will  that  the  money  shall  be  paid"  (Bigelow,  "Bills 
and  Notes,"  pp.  22-23).  Thus  the  use  of  the  word  "please" 


2J         THE  LAW  OF  COMMERCIAL  PAPER 

or  other  words  of  civility  will  not  deprive  a  bill  of  its 
imperative  quality.  For  example,  "please  pay,"  etc.,  makes 
a  good  bill  of  exchange.  And  the  following  is  held  suf- 
ficient :  "Mr.  Nelson  will  much  oblige  Mr.  Webb  by  paying 
to  J.  Ruff,  or  order,  20  guineas  on  his  account"  (i  Esp. 
129). 

A  bill  distinguished  from  a  request. — But  an  order  must 
be  distinguished  from  a  request,  which  merely  asks  a  favor 
and  does  not  import  a  right  to  ask  and  a  duty  to  obey.  An 
instrument  which  simply  requests  payment  is  not  a  bill  of 
exchange.  For  example,  "Messrs.  Songer, — Please  to  send 
£10  by  the  bearer,  as  I  am  so  ill  I  cannot  wait  upon  you. 
(Sgd.)  Eliz.  Wery. — is  not  a  bill  (i  Leach,  Crown  Law, 
323).  Nor  is  the  following:  "Mr.  Little, — Please  to  let 
the  bearer  have  £7,  and  place  it  to  my  account,  and  you  will 
oblige,  Your  humble  servant,  (Sgd.)  R.  Stackford"  (i  M.  & 
M.  171). 

A  bill  distinguished  from  an  authority  to  pay. — Again, 
an  order  must  be  distinguished  from  an  authority.  A  writ- 
ten authorization  to  a  debtor  to  pay  a  third  person,  signed 
by  the  creditor,  does  not  order  the  debtor  to  pay,  but  merely 
authorizes  him  to  pay,  and  the  third  person  to  receive  the 
money  due.  It  is,  therefore,  not  a  bill  of  exchange.  For 
example,  "Dear  Sir, — We  hereby  authorize  you  to  pay  on 
our  account  to  the  order  of  W.  G.,"  etc.,  is  not  a  bill  (4  Ex. 
200). 

A  good  example  of  the  rule  that,  so  long  as  an  instru- 
ment contains  an  order  and  not  a  mere  request  or  authority, 
it  may  be  a  bill,  notwithstanding  words  of  politeness  and  an 
unusual  form,  is  the  following  instrument: 


REQUIREMENTS  OF  COMMERCIAL  PAPER  *9 

John  Hilton,  February  I,  1910. 

to  Wm.  R.  Carpenter,  M.D.,  Debtor 

To  professional   services      $50.00 

Madison,  Feb.  15,  1910. 
James  A.  McBride,  Esq. : 
Please  pay  the  above  bill  on  March  31,  1910. 

JNO.  HILTON. 

Compare  the  above  with  Form  2,  and  notice  that  it  is  of 
the  same  legal  effect. 

The  promise  or  order  must  be  unconditional. — Section 
15.  According  to  §  I,  subdivision  2,  not  only  must  a  note 
contain  a  promise  and  a  bill  an  order,  but  the  promise  or 
order,  as  the  case  may  be,  must  not  on  its  face  be  con- 
ditional. For  example,  if  to  the  note  in  Form  i,  the  words, 
"if  you  (Carpenter)  have  delivered  to  me  (Cridler)  a  deed 
for  your  house  and  a  lot  in  Milwaukee,"  were  added  after 
the  word  "Bank,"  the  instrument  would  not  be  a  note.  Or 
if  in  the  bill  in  Form  2  the  phrase  "if  you  (McBride)  owe 
me  (Hilton)  that  amount  two  months  from  date"  were  in- 
serted, the  instrument  would  not  be  a  bill.  Again,  if  to 
the  ordinary  check  were  added  the  sentence,  "The  bank  book, 
of  the  depositor  must  accompany  this  order'^-^the  provision 
usually  found  in  orders  drawn  on  savings  banks— the^  order 
would  not  be  a  negotiable  instrument  (See  88  Me.  339). 
The  reason  for  this  rule  is  that  instruments  not  to  be  paid 
until  a  condition  has  happened  could  be  of  little  practical 
value  in  business.  No  one  would  buy  such  paper  or  accept 
it  for  a  debt  before  the  condition  happened.  As  a  conse- 
quence, in  mercantile  usage — the  source  of  the  law  of  Com- 
mercial Paper — they  were  not  negotiable. 

Daniel,   in   his   "Negotiable   Instruments,"   gives   many 
examples.    He  says :  "The  instrument  must  be  payable  un- 


2,-         THE  LAW  OF  COMMERCIAL  PAPER 

conditionally,  and  at  all  events,  in  order  to  be  negotiable. 
If  the  order  or  promise  be  payable  provided  terms  men- 
tioned are  complied  with  (as,  for  instance,  that  a  railroad 
be  built  to  a  certain  point  by  a  certain  time),  it  is  not  a 
bill  or  note;  and  likewise  if  payable  provided  a  certain  act 
be  not  done;  or  that  a  certain  receipt  be  produced;  or  an- 
other person  shall  not  previously  pay ;  or  provided  a  certain 
ship  shall  arrive;  or  provided  the  maker  shall  be  able;  or 
provided  the  maker  shall  live  a  certain  time ;  or  'on  account 
of  contract  when  completed  and  satisfactory' ;  or  'provided 
one  person  shall  first  pay  another  a  certain  sum/  or  upon 
any  contingency.  Sometimes  a  condition  of  time  is  ex- 
pressed by  the  word  'when,'  as  'when  A  shall  marry' ;  'when 
a  certain  suit  is  determined' ;  'when  a  certain  sale  is  made,' 
or  'certain  dividends  declared' ;  or  'upon  completion  of  work 
to  be  done  on  a  dwelling  house? ;  or  'not  to  be  paid  unless  I 
shall  have  the  use  of  certain  premises';  'when  a  certain 
amount  is  collected' ;  or  'when  the  estate  of  M  is  settled  up' ; 
'after  arrival  and  discharge  of  coal  by  brig  A' "  (Vol.  I, 
§40. 

Happening  of  the  condition  does  not  cure. — Section  16. 
Since  the  objection  to  such  an  instrument  is  that  from  its 
face  it  is  impossible  to  tell  whether  it  will  ever  have  to  be 
paid,  the  actual  happening  of  the  event  upon  which  it  is  to 
be  paid  does  not  make  the  instrument  good  from  that 
time.  The  instrument  is  still  conditional  on  its  face.  Section 
4,  subdivision  4,  of  the  Negotiable  Instruments  Law,  pro- 
vides: "An  instrument  payable  upon  a  contingency,  is  not 
negotiable  and  the  happening  of  the  event  does  not  cure  the 
defect  .  .  ." 

Instruments  payable  out  of  a  particular  or  special 
fund  are  conditional. — Section  17.  "In  accordance  with 
these  principles  the  character  of  the  instrument  as  a  bill 


REQUIREMENTS  OF  COMMERCIAL  PAPER  29 

or  note  is  destroyed  if  it  be  made  payable  expressly  or  by 
implication  out  of  a  particular  fund;  for  its  payment  be- 
comes then  conditioned  on  the  sufficiency  of  that  fund, 
which  may  prove  inadequate.  Thus  the  insertion,  in  an 
order  of  A  upon  B  to  pay  a  certain  sum,  of  the  words  'on 
account  of  brick  work  done  on  a  certain  building/  or  'out  of 
any  money  in  his  hands  belonging  to  me,'  have  been  held  to 
imply  contingencies,  and  to  be  nonnegotiable.  So,  also  .  .  . 
where  the  words  were  added,  'out  of  rents/  'out  of  avails, 
when  received,  on  sale  of  logs/  'out  of  my  growing  sub- 
stance/ 'out  of  the  net  proceeds  of  certain  ore/  or  'out  of  a 
certain  claim/  'out  of  a  certain  payment  when  made/  or  'the 
demand  I  have  against  the  estate  of  A/  or  'out  of  my  part 
of  the  estate  of  A/  or  'being  the  amount  that  came  to  you 
from  B  to  me/  or  'out  of  the  proceeds  of  A's  bond/  or  'and 
deduct  the  same  from  my  share  of  the  profits  of  the  part- 
nership/ or  'and  charge  the  same  to  our  account  for  labor 
and  materials,  performed  and  furnished/  or  'on  account  of 
work  done  as  per  contract/  or  'out  of  amount  due  me  on 
contract/  But  a  written  promise  to  pay,  one  day  after  the 
promisor's  death,  $2,000  for  services  rendered  'to  be  paid 
out  of  my  estate/  would  be  a  good  note,  because  payable 
generally  and  not  out  of  a  particular  fund"  (Daniel, 
"Negotiable  Instruments,"  Vol.  I,  §50). 

Instruments  where  the  particular  fund  is  referred  to 
as  a  source  for  reimbursement. — Section  18.  "But  if  a  de- 
positor having  two  accounts  with  a  bank  draws  a  check  on 
the  bank,  'Please  pay  A,  or  order,  $100  and  charge  account 
Xo.  I/  it  is  a  negotiable  instrument.  The  order  is  not  in 
terms  conditional  upon  the  existence  of  money  in  the  bank 
to  the  credit  of  the  depositor,  but  is  an  imperative  direc- 
tion to  the  bank  to  pay  A,  or  order,  $100.  The  words  'charge 
account  No.  i'  are  simply  an  indication  to  the  bank  of  the 
account  to  which  the  check  is  to  be  charged  after  it  is  paid. 


30         THE  LAW  OF  COMMERCIAL  PAPER 

The  fact  that  the  bank  might  not  pay  the  check  if  the 
depositor's  account  was  not  good  does  not  make  the  order 
conditional  on  its  face,  and  the  face  of  the  instrument  is 
controlling  in  determining  its  negotiability.  This  rule  is 
illustrated  in  Redman  v.  Adams,  51  Me.  429,  where  the 
following  order  was  held  a  bill: 

Castine,  Jan  5,  1860. 

For  value  received  please  pay  to  order  of  G.  F.  and  C.  W. 
Tilden  forty  dollars,  and  charge  same  against  whatever  amount 
may  be  due  me  for  my  share  of  fish  caught  on  board  schooner 
Morning  Star,  for  the  fishing  season  of  1860. 
Yours,  etc., 

FRANK  R.  BLAKE. 
To  Messrs.  Adams  &  Co. 
Accepted  to  pay. — Adams  &  Co. 

The  court  said:  'The  order  requires  the  drawees  to  pay 
to  the  order  of  G.  F.  and  C.  W.  Tilden  the  sum  of  forty 
dollars,  absolutely  and  without  contingency.  A  means  of 
reimbursement  is  indicated  to  the  drawees  in  the  words  ap- 
pended, "and  charge  the  same  against  whatever  amount  may 
be  due  me  for  my  share  of  fish ;  etc.,"  but  the  payment  of 
the  order  is  not  made  to  depend  upon  his  having  any  share 
of  fish,  nor  is  the  call  limited  to  the  proceeds  thereof/  " 

"An  instrument  in  which  A  promises  B  'to  pay  B  $50  of 
the  $100  which  I  owe  you*  is  not  conditional  upon  the  exist- 
ence of  the  debt,  for  the  face  of  the  instrument  assumes 
its  existence.  It  is  very  different  from  a  promise  to  pay 
$50  of  the  $100  I  owe  you,  if  I  owe  anything.  Upon  this 
reasoning  the  following  was  held  a  bill: 

'Mr.  Brigham,  Dear  Sir:  You  will  please  pay  Elisha  Wells 
$30,  which  is  due  me  for  the  two-horse  wagon  bought  last 
spring,  and  this  may  be  your  receipt.' 


REQUIREMENTS  OF  COMMERCIAL  PAPER  31 

The  order  was  an  absolute  one  to  pay  a  debt  stated  to  be 
due.  If  it  in  fact  appeared  that  Brigham  did  not  owe  the 
drawer  of  the  order,  still  the  order  would  be  absolute  on 
its  face." 

Statement  of  transaction  giving  rise  to  the  instrument, 
— Section  19.  The  statement  in  a  bill  or  note  of  the  trans- 
action as  a  part  of  which  the  instrument  was  delivered  does 
not  make  it  conditional  and,  therefore,  not  a  negotiable 
instrument.  Nor  does  the  statement  of  the  consideration, 
that  is,  the  statement  of  the  promise  or  thing  for  which  the 
bill  or  note  was  given,  interfere  with  its  negotiability.  An 
example  of  this  rule  is  the  following  instrument  which  was 
held  a  good  promissory  note  notwithstanding  the  words 
italicized : 

$300  Chicago,  Mar.  5,  1887. 

On  July  i,  1887,  we  promise  to  pay  D.  Dalziel,  or  order,  the 
sum  of  three  hundred  dollars,  for  the  privilege  of  one  framed 
advertising  sign,  size  —  x  —  inches,  one  end  of  each  one 
hundred  and  fifty-nine  street  cars  of  the  North  Chicago  City 
Railway  Co.,  for  a  term  of  three  months,  from  May  15,  1887. 
Siegel  &  Cooper  Co.  (131  111.  569). 

The  Neg.  Inst.  Law,  §  3,  sums  up  the  matter.  (Read  and 
study.) 

"As  per  contract." — Section  20.  Promissory  notes  some- 
times have  the  words  "as  per  contract"  or  similar  words 
added  to  them,  but  they  do  not  make  such  instruments 
invalid  as  notes.  There  is  nothing  in  the  words  themselves 
to  make  the  paper  conditional  on  its  face.  Even  if  the 
contract  referred  to,  when  examined,  provided  that  the  note 
was  not  to  be  paid  until  certain  work  had  been  done,  still 
the  condition  would  not  be  on  the  face  of  the  note.  Thus 
the  following  instrument  is  a  valid  note : 


32         THE  LAW  OF  COMMERCIAL  PAPER 

London,  2pth  Oct.,  1857. 

I  promise  to  pay  to  Mr.  J.  C.  Saunders  or  his  order,  at  three 
months  after  date,  the  sum  of  one  hundred  pounds,  as  per 
memorandum  of  agreement. 

HENRY  JOHN  BARKER. 
Payable  at  105  Upper  Thames  Street,  London. 

(Ellis,  B.  &  E.  459.) 

Another  example  would  be  the  note  in  Form  i  with  this 
clause  added:  "This  note  is  given  in  accordance  with  the 
terms  of  a  certain  contract  under  the  same  date,  between 
the  same  parties"  (108  Mich.  184). 

Of  course,  a  person  who  buys  such  an  instrument  must 
take  notice  that  there  is  a  contract  or  agreement  under 
the  terms  of  which  the  note  may  not  be  payable  until  a 
condition  is  fulfilled,  and  that  the  maker  may  have  a  de- 
fense on  that  ground.  But  since  the  condition  is  not  on 
the  face  of  the  instrument,  it  is  a  valid  negotiable  note. 

Notes  such  as  we  have  been  discussing  should  be  care- 
fully distinguished  from  instruments  somewhat  similar  in 
appearance  where,  however,  the  condition  does  appear  on 
the  face.  For  example,  if  to  Form  i  were  added  the  words : 
"If  the  provisions  of  the  contract  this  day  made  between  us 
are  fulfilled  by  you  (Carpenter)."  Here  from  the  instru- 
ment itself  it  appears  that  payment  is  not  to  be  made  unless 
and  until  the  "provisions  of  the  contract"  are  performed. 

«l 

The  promise  or  order  must  be  to  pay  a  "sum  certain." 
Section  21.  According  to  Section  i,  subdivision  2,  the  in- 
strument to  be  negotiable  not  only  must  contain  "an  uncon- 
ditional promise  or  order" ;  but  the  "unconditional  promise" 
or  the  "unconditional  order"  must  be  "to  pay  a  sum  certain." 
An  example  would  be  a  note  like  that  in  Form  i  to  which 


REQUIREMENTS  OF  COMMERCIAL  PAPER  33 

was  added:     "and  whatever  other  sums  I  owe  you  four 
months  from  date"  (34  Me.  96). 

Interest, — A  stipulation  for  interest  at  a  given  rate,  how- 
ever, does  not  make  the  sum  payable  uncertain ;  for  taking 
the  data  on  the  face  of  the  note,  i.  e.,  the  date  when  the  prin- 
cipal sum  is  due,  its  amount,  and  the  rate  of  interest,  the 
amount  of  interest  payable  at  maturity  is  a  mere  matter  of 
computation.  The  same  result  follows  if  the  promise  is 
simply  to  pay  interest,  without  specifying  a  rate,  for  the 
legal  rate  is  then  payable. 

It  is  true  if  the  instrument  is  not  paid  at  maturity,  that 
when,  if  ever,  it  will  be  paid  is  uncertain,  and  that  in  conse- 
quence the  amount  of  interest  finally  payable  cannot  be  as- 
certained from  the  instrument.  This,  however,  is  immaterial, 
for  the  canon  of  certainty  refers  to  the  maturity  of  the  in- 
strument. For  the  same  reason  it  is  held  that  bills  and 
notes  specifying  different  rates  of  interest  before  and  after 
maturity  are  certain  in  amount.  For  example,  the  follow- 
ing is  a  valid  note : 

$100  Good  Thunder,  July  24,  1882. 

For  value  received  on  or  before  the  first  day  of  January, 
1884,  I,  or  we,  or  either  of  us,  promise  to  pay  to  the  order  of 
D.  M.  Osborne  and  Co.  the  sum  of  one  hundred  dollars,  at  the 
office  of  Gebhard  and  Moore,  in  Mankato,  with  interest  at 
ten  per  cent  per  annum  from  date  until  paid;  seven,  if  paid 
when  due. 

J.  B.  CRANE. 

On  the  same  principle  a  stipulation  to  pay,  in  addition 
to  principal  and  interest,  costs  of  collection  and  attorney's 
fees,  if  the  bill  or  note  is  not  paid  at  maturity  does  not 
affect  its  negotiability.  The  sum  payable  at  maturity  is 
certain. 


34         THE  LAW  OF  COMMERCIAL  PAPER 

An  exception  to  the  requirement  of  certainty  is  based 
upon  the  commercial  usage  of  making  bills  and  notes  pay- 
able at  one  place  with  exchange  on  another.  This  usage  is 
recognized  although  its  recognition  is  technically  a  viola- 
tion. "With  current  exchange  on  New  York  City"  is  good. 

A  bill  or  note  payable  in  installments,  for  example,  $100 
in  ten  payments  of  $10  each  every  30  days,  is  unques- 
tionably certain  as  to  amount.  So  also  is  such  an  instru- 
ment which  further  provides  that  in  case  of  a  default  in 
the  payment  of  any  installment,  the  whole  amount  shall  at 
once  become  due. 

Section  2  recapitulates  for  us  the  rules  with  respect  to 
certainty  of  sum.  (Read  and  study.) 

A  bill  or  note  must  be  payable  in  money. — Section  22. 
If  we  turn  again  to  §  I,  subdivision  2,  we  find  that  the 
concluding  words  require  that  the  unconditional  order  or 
promise  must  be  to  pay  a  sum  certain  "in  money."  Norton  in 
his  "Bills  and  Notes,"  referring  to  this  requirement  says: 
"Bills  and  notes,  being  representatives  of  money,  must  be 
payable  in  money.  'Money/  within  this  rule,  means  what- 
ever may  be  used  as  legal  tender  for  payment  of  debts  at 
the  place  where  the  bill  or  note  is  payable.  In  the  United 
States  what  is  legal  tender  is  determined  by  the  'Legal  Ten- 
der Act.'  Where  there  are  several  kinds  of  legal  tender, 
as  gold,  silver,  and  notes,  a  bill  or  note  may  be  made  payable 
in  either.  But  all  other  kinds  of  currency,  whether  coin 
or  paper,  are  in  law  but  'collateral'  commodities,  like  ingots 
or  diamonds,  which,  though  they  might  be  received,  and  be 
in  fact  equivalent  to  money,  are  yet  but  goods.  .  .  .  For 
this  reason  an  instrument  which  possesses  all  the  other 
requisites  of  a  bill  or  note  is  not  such  if  the  medium  of 
payment  be  limited  to  what  is  not  'money/ 

"The  real  reason  for  the  requirement  that  negotiable  in- 


REQUIREMENTS  OF  COMMERCIAL  PAPER  35 

struments  must  be  payable  in  money  obviously  is  that 
money  is  the  one  standard  of  value  in  actual  business.  All 
other  commodities  may  rise  and  fall  in  value,  but  in  theory, 
at  least,  money  always  measures  this  rise  and  fall,  and 
remains  the  same.  The  chattel  which  is  used  as  a  means 
of  payment  may  fluctuate  in  value.  Thus,  'a  note  payable  in 
neat  cattle/  a  promise  to  pay  'in  a  good  horse,  to  be  worth 
$80  and  goods  out  of  store  amounting  to  $2O/ — are  non- 
negotiable.  .  .  .  There  is  one  apparent  deviation  from  the 
rule,  which  it  is  important  to  notice.  Where  a  bill  or  note 
is  expressed  in  money  of  a  foreign  denomination,  it  is  still 
negotiable.  The  courts,  under  the  statutes  of  the  United 
States,  will  take  judicial  notice  of  the  fact  that  the  value 
of  foreign  coin,  as  expressed  in  the  money  of  account  in 
the  United  States,  shall  be  that  of  the  pure  metal  of  such 
coin  of  standard  value ;  and  that  the  value  of  the  standard 
coin  of  the  various  nations  of  the  world  in  circulation  is 
estimated  annually  by  the  directors  of  the  mint,  and  pro- 
claimed on  the  first  day  of  January  by  the  secretary  of  the 
treasury.  These  foreign  denominations,  therefore,  can 
always  be  paid  in  our  own  coin  of  equivalent  value,  to 
which  it  is  always  reduced  on  a  recovery.  In  an  action 
upon  such  an  instrument  the  course  is  to  prove  the  value 
of  the  sum  expressed  in  our  own  tenderable  coin."  (Pp.  43, 
45,  46-47). 

This  "apparent  deviation"  from  the  rule  is  not  a  deviation 
at  all.  The  rule  is  that  a  bill  Or  note  must  be  payable  in 
money,  that  is,  legal  tender  of  the  United  States,  and  not 
that  the  sum  to  be  paid  must  be  expressed  in  money-of  the 
United  States.  Thus  an  English  bill  of  exchange  ordering 
payment  of  "£20  in  New  York  City  in  United  States  money" 
is  payable  in  United  States  money  though  the  sum  is  ex- 
pressed in  English  money,  and  is  therefore  a  good  bill.  This 
explains  also  why  negotiable  instruments  in  which  the  sum 


36         THE  LAW  OF  COMMERCIAL  PAPER 

is  expressed  in  foreign  money  without  stating  in  what 
money  payment  is  to  be  made,  are  good.  In  such  instru- 
ments it  is  presumed  that  the  parties  intended  payment  to 
be  made  in  the  legal  tender  of  the  country  where  the  instru- 
ment is  to  be  paid,  regardless  of  the  kind  of  money  in  which 
the  sum  was  expressed.  For  this  reason  the  following  is 
payable  in  United  States  money  and,  in  consequence,  is  a 
valid  note: 

£20  Madison,  Wisconsin,  Jan.  i,  1910. 

Ten  days  after  date  I  promise  to  pay  Wm.  R.  Carpenter  or 
order  £20  English. 

D.  F.  CRIDLER. 

A  bill  or  note  may  specify  the  particular  kind  of  legal 
tender  in  which  it  is  to  be  paid.  (See  Neg.  Inst.  Law,  §  6, 
subdivision  5,  1st  sentence.)  Thus  a  note  may  specify 
"U.  S.  gold  eagles"  or  "U.  S.  silver  dollars"  as  a  medium 
of  payment. 

Section  23.  Instruments  like  the  certificates  of  deposit 
payable  "in  current  funds"  have  caused  much  difficulty  be- 
cause of  the  doubt  whether  those  words  meant  legal  tender 
or  not.  Some  courts  have  held  they  mean  legal  tender  and 
that  the  instruments  are  valid  bills  or  notes.  Others  have 
held  that  "current  funds"  includes  not  only  money  but 
also  Commercial  Paper  which  is  current  in  business  but  is 
not  legal  tender.  If  read  with  this  meaning  the  instru- 
ments are  not  bills  or  notes. 


CHAPTER  III 

FORMAL  REQUIREMENTS  OF  COMMERCIAL  PAPER   (Continued) 

The  instrument  must  not  contain  an  order  or  promise 
to  do  an  act  in  addition  to  the  payment  of  money.— 

Section  24.  Not  only  must  a  bill  or  note  be  for  the  pay- 
ment of  money,  but  it  must  not  be  coupled  with  an  order 
or  promise  to  do  any  act  in  addition  to  the  payment  of 
money.  Thus  a  note  containing  a  promise  to  pay  $100  on 
January  I,  and  also  to  deliver  a  horse  to  the  payee  on  that 
date  is  not  a  valid  negotiable  instrument.  Such  an  instru- 
ment is  a  hybrid  between  a  promissory  note  and  a  Common 
Law  contract  containing  two  obligations,  one  to  pay  money, 
the  other  to  deliver  property.  The  Common  Law  obliga- 
tion is  not  negotiable,  and  the  instrument  is  not  divisible, 
so  the  instrument  as  a  whole  is  not  negotiable. 

If  the  instrument  contained  a  promise  to  pay  $100  on 
January  I,  or  to  deliver  a  horse  on  that  date,  it  is  not  a 
promissory  note.  The  reason  here  is  that  the  promise  is 
not  an  unqualified  promise  to  pay  money.  It  is  a  promise 
either  to  pay  money  or  to  deliver  property  as  the  maker 
chooses.  But  if  the  instrument  contains  a  promise  to  pay 
money,  or  at  the  option  of  the  holder  of  the  instrument,  to 
deliver  property,  it  is  held  to  be  a  good  negotiable  promis- 
sory note.  In  such  a  case  the  maker's  promise  to  pay  mo"hey 
is  unqualified  and  unconditional,  for  according  to  its  terms 
he  must  do  so  if  the  holder  wishes.  Upon  this  reasoning 
the  following  was  held  a  promissory  note : 

37 


38         THE  LAW  OF  COMMERCIAL  PAPER 

Rutland  and  Burlington  Railroad  Company. 

$1,000 

;       Boston,  April  I,   1850. 
No.  253. 

In  four  years  from  date,  for  value  received,  the  Rutland 
and  Burlington  Railroad  Company  promises  to  pay  in  Boston, 
to  Messrs.  W.  S.  &  D.  W.  Shuler,  or  order,  $1,000,  with  interest 
thereon,  payable  semiannually,  as  per  interest  warrants  hereto 
attached,  as  the  same  shall  become  due;  or  upon  the  surrender 
of  this  note,  together  with  the  interest  warrants,  not  due,  to  the 
treasurer,  at  any  time  until  six  months  of  its  maturity,  he  shall 
issue  to  the  holder  thereof  ten  shares  in  the  capital  stock  in 
said  company  in  exchange  therefor,  in  which  case  interest  shall 
be  paid  to  the  date  to  which  a  dividend  of  profits  shall  have 
been  previously  declared,  the  holder  not  being  entitled  to  both 
interest  and  accruing  profits  during  the  same  period. 

T.  FOLLET,  President, 
SAM.  HENSHAW,  Treasurer. 

The  Court  said:  "The  instrument  on  which  the  action 
was  brought  has  all  the  essential  qualities  of  a  negotiable 
promissory  note.  It  is  for  the  unconditional  payment  of  a 
certain  sum  of  money,  at  a  specified  time,  to  the  payee's 
order.  It  is  not  an  agreement  in  the  alternative,  to  pay 
in  money  or  railroad  stock.  It  was  not  optional  with  the 
makers  to  pay  in  money  or  stock,  and  thus  fulfill  their  prom- 
ise in  either  of  two  specified  ways;  in  such  case,  the 
promise  would  have  been  in  the  alternative.  The  possi- 
bility seems  to  have  been  contemplated  that  the  owner  of 
the  note  might  before  its  maturity  surrender  it  in  exchange 
for  stock,  thus  canceling  it  and  its  money  promise ;  but  that 
promise  was  nevertheless  absolute  and  unconditional,  and 
was  as  lasting  as  the  note  itself.  In  no  event  could  the 
holder  require  money  and  stock.  It  was  only  upon  a  sur- 
render of  the  note  that  he  was  to  receive  stock;  and  the 
money  payment  did  not  mature  tintil  six  months  after  the 
holder's  right  to  exchange  the  note  for  stock  had  expired. 


REQUIREMENTS  OF  COMMERCIAL  PAPER  39 

We  are  of  the  opinion  that  the  instrument  wants  none  of 
the  essential  requisites  of  a  negotiable  promissory  note.  It 
was  an  absolute  and  unconditional  engagement  to  pay 
money  on  a  day  fixed ;  and  although  an  election  was  given 
to  the  promises,  upon  a  surrender  of  the  instrument  six 
months  before  its  maturity,  to  exchange  it  for  stock,  this 
did  not  alter  its  character,  or  make  the  promise  in  the 
alternative,  in  the  sense  in  which  that  word  is  used  respect- 
ing promises  to  pay.  The  engagement  of  the  railroad 
company  was  to  pay  the  sum  of  $1,000  in  four  years  from 
date,  and  its  promise  could  only  be  fulfilled  by  the  payment 
of  the  money,  at  the  day  named"  (Hodges  v.  Shuler,  22 
N.  Y.  114). 

Incidental  and  subsidiary  clauses  not  destroying  nego- 
tiability.— Section  25.  "But  while  an  instrument  which  in- 
corporates with  the  order  or  promise  to  pay  an  agreement 
to  do  some  other  act  is  not  a  bill  or  note,  it  is  possible, 
without  destroying  the  negotiability  of  a  bill  or  note,  to 
annex  to  it  an  agreement  which  relates  to  it,  but  which 
is  merely  incidental.  The  point  to  determine  is  whether 
such  agreement  is  a  part  of  or  necessary  to  the  fulfillment 
of  the  promise  or  order.  If  it  is  not,  it  does  not  destroy 
the  instrument's  negotiability.  .  .  . 

"In  conformity  with  the  rule  that  a  mere  incidental  agree- 
ment, which  is  collateral  to  the  order  or  promise  to  pay, 
does  not  render  it  nonnegotiable,  it  is  generally,  though  by 
no  means  universally,  held  that  an  instrument  is  none  the 
less  negotiable  because  it  contains  provisions,  to  take  effect 
if  it  is  not  paid  at  maturity,  (i)  authorizing  the  holder 
to  confess  judgment  for  the  maker;  or  (2)  waiving  de- 
fenses, or  the  benefit  of  stay  or  exemption  laws;  or  (3) 
promising  to  pay  costs  of  collection  and  attorney's  fees.  It 
was  said  by  Gibson,  C.  J.,  in  a  case  which  held  that  power 
to  confess  judgment  and  waiver  of  stay  of  execution  and 


40         THE  LAW  OF  COMMERCIAL  PAPER 

appraisement  rendered  a  note  nonnegotiable,  that  'a  nego- 
tiable bill  or  note  is  a  courier  without  luggage/  and  that 
'the  parties  could  not  have  intended  to  impress  a  com- 
mercial character  on  the  note,  dragging  after  it,  as  it  would, 
a  train  of  special  provisions,  which  would  materially  im- 
pede its  circulation.'  But  in  answer  to  this  objection  it  has 
been  well  said  that  such  provisions  do  not  impede,  but  aid, 
the  circulation.  While  in  answer  to  another  objection, 
which  has  been  urged,  that  a  provision  for  payment  of 
costs  and  attorney's  fees  renders  uncertain  the  amount  to 
be  paid,  it  is  a  sufficient  answer  that,  the  amount  payable 
at  maturity  being  certain,  a  promise  to  pay  an  additional, 
even  if  uncertain,  amount  in  case  of  nonpayment  at  ma- 
turity, after  which  time  the  instrument  necessarily  ceases 
to  be  negotiable,  does  not  impair  its  negotiability"  (Norton, 
"Bills  &  Notes,"  pp.  48,  50-51). 

§  5  of  the  Negotiable  Instruments  Law  states  the  rules  we 
have  discussed.  (Read  and  study.) 

Must  be  certain  as  to  time  of  payment. — Section  26.  An 
instrument  to  be  a  promissory  note  or  bill  of  exchange 
must  be  certain  as  to  the  time  of  payment.  The  usual 
form  of  instrument  is  clearly  certain.  (See  forms  I  and  2 
in  Chapter  I.)  The  following  instruments  are  just  as 
clearly  uncertain: 

Jan.  i,  1910. 

Ten  days  after  my  coming  marriage,  I  promise  to  pay  Wm. 
R.  Carpenter  or  order,  $100. 

DAN'L  F.  CRIDLER. 

Jan.  i,  1910. 

I  promise  to  pay  Wm.  R.  Carpenter  or  order  $100  on  the 
day  he  becomes  21  years  old. 

DAN'L  F.  CRIDLER. 


REQUIREMENTS  OF  COMMERCIAL  PAPER  4I 

Carpenter  may  never  attain  21  and  Cridler  may  never 
marry.  In  consequence  the  time  of  payment  may  never 
arrive,  it  is  uncertain,  and  the  instruments  are  not  promis- 
sory notes. 

Kelley  v.  Hemmingway  (13  111.  604)  is  another  example: 
Treat,  Chief  Justice.  This  is-  an  action  brought  by  Hem- 
mingway against  Kelley  before  a  justice  of  the  peace,  and 
taken  by  appeal  to  the  Circuit  Court.  On  the  trial  in  the  latter 
court  the  plaintiff  offered  in  evidence  an  instrument  in  these 
words : 

Castelton,  April  27,  1844. 

Due  Henry  D.  Kelley  fifty-three  dollars  when  he  is  twenty- 
one  years  old,  with  interest. 

DAVID  KELLEY. 
(On  the  back  of  which  was  this  indorsement.) 

Rockton,  May  I,  1849. 
Signed  the  within,  payable  to  Moses  Hemmingway. 

HENRY  KELLEY. 

The  plaintiff  proved  that  the  payee  became  of  age  in 
August,  1849.  The  defendant  objected  to  the  introduction 
of  the  instrument  because  it  was  not  negotiable,  but  the 
court  admitted  it  in  evidence  and  rendered  judgment  for 
the  plaintiff. 

Some  statutes  make  promissory  notes  assignable  by  in- 
dorsement in  writing,  so  as  absolutely  to  vest  the  legal 
interest  in  the  assignee.  Was  the  instrument  in  question 
a  promissory  note?  To  constitute  a  promissory  note,  the 
money  must  be  certainly  payable,  not  dependent  on  any 
contingency,  either  as  to  event,  or  the  fund  out  of  which 
payment  is  to  be  made,  or  the  parties  by  or  to  whom  pay- 
ment is  to  be  made.  If  the  terms  of  an  instrument  leave 
it  uncertain  whether  the  money  will  ever  become  payable, 
it  cannot  be  considered  as  a  promissory  note.  (Chitty  on 


42         THE  LAW  OF  COMMERCIAL  PAPER 

Bills,  134.)  Thus  a  promise  in  writing  to  pay  a  sum  of 
money  when  a  particular  person  shall  be  married  is  not  a 
promissory  note,  because  it  is  not  certain  that  he  will  ever 
be  married.  So  of  a  promise  to  pay  when  a  particular  ship 
shall  return  from  sea,  for  it  is  not  certain  that  she  will 
ever  return.  In  all  such  cases,  the  promise  is  to  pay  on  a 
contingency  that  may  never  happen.  But  if  the  event  on 
which  the  money  is  to  become  payable  must  inevitably  take 
place,  it  is  a  matter  of  no  importance  how  long  the  pay- 
ment may  be  suspended.  A  promise  to  pay  a  sum  of 
money  on  the  death  of  a  particular  individual  is  a  good 
promissory  note,  for  the  event  on  which  the  payment  is 
made  to  depend  will  certainly  transpire. 

In  this  case,  the  payment  was  to  be  made  when  the  payee 
should  attain  his  majority — an  event  that  might  or  might 
not  take  place.  The  contingency  might  never  happen,  and, 
therefore,  the  money  was  not  certainly  and  at  all  events 
payable.  The  instrument  lacked  one  of  the  essential  in- 
gredients of  a  promissory  note,  and  consequently  was  not 
negotiable  under  the  statute.  The  fact  that  the  payee  lived 
till  he  was  twenty-one  years  of  age  makes  no  difference. 
It  was  not  a  promissory  note  when  made,  and  it  could  not 
become  such  by  matter  ex  post  facto.  The  plaintiff  has  not  • 
the  legal  title  to  the  instrument.  If  it  presents  a  cause  of 
action  against  the  maker,  the  suit  must  be  brought  in  the 
name  of  the  payee.  The  case  of  Goss  v.  Nelson  (I  Burr. 
226)  is  clearly  distinguishable  from  the  present.  There, 
the  note  was  made  payable  to  an  infant  when  he  should 
arrive  at  age,  and  the  day  when  that  was  to  be  was  speci- 
fied. The  Court  held  the  instrument  to  be  a  good  promis- 
sory note,  but  expre'ssly  on  the  ground  that  the  money  was 
at  all  events  payable  on  the  day  named,  whether  the  payee 
should  live  till  that  time,  or  die  in  the  interim;  and  it  was 
distinctly  intimated  that  the  case  would  be  very  different 


REQUIREMENTS  OF  COMMERCIAL  PAPER  43 

had  the  day  not  been  stated  in  the  note.  It  was  regarded 
as  an  absolute  promise  to  pay  on  the  day  specified,  and 
no  effect  was  given  to  the  words  that  the  payee  would  then 
become  of  age. 

But  if  time  specified  is  certain  to  arrive  the  bill  or  note 
is  sufficiently  certain.  Instruments  payable  at  or  after 
death. — Section  27.  But  how  should  we  decide  as  to  the 
following  instruments? 

Thirty  days  after  death  I  promise  to  pay  to  Wm.  R.  Car- 
penter or  order  $roo. 

DAN'L  F.  CRIDLER. 

Ten  days  after  the  death  of  my  father  I  promise  to  pay 
Wm.  R.  Carpenter  or  order  $100. 

DAN'L  F.  CRIDLER. 

The  courts  have  held  them  (as  the  judge  in  Kelley  v. 
Hemmingway  said)  to  be  valid  notes  because  in  each  the 
time  of  payment  is  certain  to  arrive  some  time  in  the  future. 
Nothing  is  more  certain  than  death,  though  the  time  of 
death  is  uncertain. 

Instruments  payable  in  a  reasonable  time. — Section  28. 
On  the  same  reasoning,  instruments  payable  "in  a  reasonable 
time,"  or  "when  convenient"  or  "when  we  mutually  agree," 
have  been  held  promissory  notes  because  they  are  payable 
in  a  reasonable  time  and  a  reasonable  time  is  sure  to  elapse. 
Page  v.  Cook  (164  Mass.  116)  is  such  a  case.  The  instru- 
ment was  in  this  form : 

$500.  Boston,  May  I,  1891.  On  demand,  after  date,  I 
promise  to  pay  to  the  order  of  Hollis  Bowman  Page  five  hun- 
dred dollars,  payable  when  payor  and  payee  mutually  agree. 
Value  received. 

GRACE  V.  COOK. 


44         THE  LAW  OF  COMMERCIAL  PAPER 

The  Court  said :  "According  to  the  literal  construction  of 
this  note,  although  the  defendant  promises  to  pay  the  plain- 
tiff the  sum  named  when  he  demands  it,  she  may  escape 
the  performance  of  this  promise  by  refusing  to  agree  with 
the  plaintiff  when  it  shall  be  paid.  We  think  that  it  hardly 
could  have  been  the  intention  of  the  parties  to  put  it  into 
the  power  of  the  defendant  thus  to  avoid  payment,  and  that 
it  is  more  reasonable  to  construe  it  as  meaning  that  it  is 
payable  when  and  after  the  payor  ought  reasonably  to  have 
agreed.  .  .  .  The  promise  to  pay  is  absolute.  It  is  only  the 
time  of  payment  which  is  left  to  future  agreement.  Evi- 
dently it  is  expected  from  the  tenor  of  the  note  that  the 
parties  will  agree,  and  that  a  time  will  be  fixed,  and  that  the 
note  will  be  paid.  But  no  time  is  fixed  within  which 
that  agreement  is  to  be  made.  The  law  will,  therefore, 
imply  a  reasonable  time.  Besides  it  is  the  payment,  not  the 
nonpayment,  of  the  note  for  which  the  parties  are  provid- 
ing. If  the  payor  does  not  within  a  reasonable  time  agree 
when  the  note  shall  be  paid,  there  is  nothing  unjust  nor  at. 
variance  with  the  real  meaning  of  the  contract  in  holding 
that  the  payee  may  thereupon  demand  payment,  and,  if 
the  note  is  not  paid,  proceed  to  collect  it." 

Instruments  payable  "on  or  before." — Section  29.  The 
common  form  of  note  payable  "on  or  before  Jan.  i,  1911,"  is 
a  familiar  example  of  the  rule  that  if  the  time  of  payment 
is  bound  to  arrive,  uncertainty  as  to  when  the  instrument 
will  be  paid  will  not  deprive  it  of  its  negotiable  character: 

Instruments  payable  in  installments. — Section  30.  Notes 
payable  in  installments  are  also  held  to  be  negotiable  instru- 
ments on  this  principle,  even  when,  as  is  frequently  pro- 
vided, the  whole  sum  became  due  upon  default  in  the  pay- 
ment of  an  installment,  or  of  interest,  or  in  the  performance 
of  a  provision  of  a  mortgage  given  to  secure  the  note.  The 


REQUIREMENTS  OF  COMMERCIAL  PAPER    45 

following  are  examples  of  negotiable  instruments  held  to 
be  such  notwithstanding  the  provision  hastening  payment 
in  case  of  default : 

Dec.  n,  1900. 
$6500 

Three  years  after  date  I  promise  to  pay  to  the  order  of  H. 
Hermann  $6500.00  with  interest  at  five  per  cent  payable  semi- 
annually. 

The  payment  of  this  note  is  secured  by  a  mortgage  of  even 
date  herewith  on  real  estate.  If  default  shall  be  made  in  the 
payment  of  interest,  or  in  case  of  failure  to  comply  with  any 
of  the  conditions  or  agreements  of  the  mortgage  collateral 
hereto,  then  the  whole  amount  of  the  principal  shall  at  the 
option  of  the  mortgagee,  or  his  representatives  or  assigns 
(notice  of  such  option  being  hereby  expressly  waived),  become 
due  and  payable  without  any  notice  whatever. 

HENRY  MINDEMAN. 

25th  April,  1872. 

£170 

We  'promise  to  pay  to  Messrs.  M.  H.  Cooke  and  Co.  £170 
with  interest  thereon  at  the  rate  of  5  per  cent  per  annum,  as 
follows :  the  first  payment  to  wit  £40  or  more,  to  be  made  on  the 
ist  of  Feb.,  1873,  and  £5  on  the  first  day  of  each  month  follow- 
ing until  this  note  and  interest  shall  be  fully  satisfied,  and  in 
case  default  shall  be  made  in  payment  of  any  of  the  said  in- 
stallments, the  full  amount  then  remaining  due  in  respect  of 
the  said  note  and  interest  shall  be  forthwith  payable. 

JOHN  HORN. 

Providence,  Nov.  I,  1873. 
$1000 

Three  years  from  January  ist,  1874,  for  value  received,  the 
A.  &  W.  Sprague  Manufacturing  Company  promise  to  pay  to 
the  order  of  A.  &  W.  Sprague  One  Thousand  Dollars,  with 


46         THE  LAW  OF  COMMERCIAL  PAPER 

interest  from  January  I,  1874,  payable  semiannually  at  the 
rate  of  seven  and  three-tenths  per  cent  per  annum,  till  said 
principal  sum  is  paid,  whether  at  or  after  maturity;  and  all 
installments  of  interest  in  arrear  shall  bear  interest  at  the  rate 
aforesaid  till  paid,  but  reserving  the  right  to  pay  this  note  be- 
fore maturity  in  installments  of  not  less  than  five  (5)  per 
cent,  of  the  principal  thereof,  at  any  time  the  semiannual  in- 
terest becomes  payable,  principal  and  interest  payable  at  their 
place  of  business  in  said  Providence. 

AMOS  SPRAGUE, 

Treasurer. 

Countersigned,  Z.  CHAFEE,  Trustee, 
(Indorsed)  A.  &  W.  SPRAGUE. 

The  Court,  in  its  opinion  holding  the  last  of  the  above 
instruments  a  valid  note,  said: 

"Are  they  certain  as  to  time  of  payment  ?  And  upon  this 
point  let  us  first  ascertain  what  degree  of  certainty  is  meant 
by  this  expression.  We  think  the  rule  of  law  is  clearly 
this,  namely:  'that  if  the  time  of  payment  named  in  the 
note  must  certainly  come,  although  the  precise  day  may  not 
be  specified  therein,  it  is  sufficiently  certain  as  to  time/  In 
other  words,  it  must  not  depend  upon  any  contingency:  as 
'when  A  shall  marry'  (Pearson  v.  Garrett,  4  Mod.  242) ; 
or  when  a  certain  ship  shall  arrive  (Coolidge  v.  Ruggles, 
15  Mass.  387;  Grant  v.  Wood,  12  Gray  220;  Palmer  v. 
Pratt,  2  Bing.  185)  ;  or  when  a  certain  suit  is  determined 
(Shelton  v.  Bruce,  9  Yerg.  24.  See  also  Woodbury,  Wil- 
liams and  English  v.  Roberts,  59  Iowa  348).  And  here  the 
maxim,  Id  cerium  est  quod  certum  reddi  poles,  is  applicable, 
although  perhaps  it  is  not  as  to  the  amount. 

"So  in  Cota  v.  Buck  (7  Met.  588),  it  was  held,  Shaw,  C.  J., 
delivering  the  opinion  of  the  court,  that  a  note  in  the  fol- 
lowing form,  namely:  'For  value  received  I  promise  to 
pay  J.  P.  or  bearer,  $570.50,  it  being  for  property  I  pur- 
chased of  him  in  value  at  this  date,  as  being  payable  as 


REQUIREMENTS  OF  COMMERCIAL  PAPER  47 

soon  as  can  be  realized  of  the  above  amount  for  the  said 
property  I  have  this  day  purchased  of  said  P.,  which  is  to 
be  paid  in  the  course  of  the  season  now  coming/  was  a 
negotiable  promissory  note,  on  the  ground  that  it  was 
payable  at  all  events  within  a  limited  time,  namely,  'the 
coming  season/  and  that  whether  that  meant  'harvest  time 
or  the  end  of  the  year/  it  must  come  by  the  mere  lapse  of 
time,  and  that  must  be  the  ultimate  limit  of  the  time  pay- 


"So,  also,  in  Curtis  v.  Horn  (58  N.  H.  504),  a  note  payable 
'on  or  before  the  first  day  of  May  next/  was  held  to  be 
negotiable.  In  delivering  the  opinion  of  the  court  in  that 
case,  Justice  Bingham  said :  'It  is  now  the  common  law, 
that  where  the  payment  is  made  to  depend  upon  an  event 
that  is  certain  to  come,  and  uncertain  only  in  regard  to 
the  time  when  it  will  take  place,  the  note  or  bill  is  nego- 
tiable/ In  Mattison  v.  Marks  (31  Mich.  421),  it  was  held 
that  a  promise  to  pay  'on  or  before'  a  day  named  stated  the 
time  tor  payment  with  sufficient  certainty.  In  that  case 
Cooley,  J.,  said:  The  legal  rights  of  the  holder  are  clear 
and  certain ;  the  note  is  due  at  a  time  fixed,  and  is  not  due 
before.  True,  the  maker  may  pay  sooner  if  he  shall  choose, 
but  this  option,  if  exercised,  would  be  a  payment  in  ad- 
vance of  the  legal  liability  to  pay,  and  nothing  more.  Notes 
like  this  are  common  in  commercial  transactions,  and  we  are 
not  aware  that  their  negotiable  quality  is  ever  questioned 
in  business  dealings. 

"Indeed,  the  cases  have  gone  so  far  in  this  direction  as  to 
hold  that  a  note  payable  within  a  limited  time  after  the 
death  of  a  person  named  is  sufficiently  certain  as  to  time. 
(Cooke  v.  Colehan,  2  Strange,  1217;  Colehan  v.  Cooke, 
Willes,  393.)  So,  also,  it  has  been  repeatedly  held  that 
notes  payable  in  installments  at  fixed  dates  are  negotiable." 


48         THE  LAW  OF  COMMERCIAL  PAPER 

Section  i,  subdivisions  3  and  4  are  the  sections  of  the 
statute  incorporating  the  rules  we  have  been  considering. 
(Read  and  study.) 

Demand  instruments. — Section  31.  Although  not  certain 
as  to  the  time  of  payment,  which  lies  to  a  great  extent 
within  the  control  of  the  holder,  instruments  payable  on 
demand  or  at  sight  have  always  been  held  good  bills  and 
notes.  An  instrument  like  a  check  which  does  not  specify 
any  time  of  payment  is  construed  to  be  payable  on  demand 
and  consequently  is  a  valid  negotiable  instrument. 

Section  i,  subdivisions  3  and  7  of  the  statute  recognize 
and  define  demand  instruments.  (Read  and  study.) 

Parties. — Section  32.  There  are  two  parties  to  a  promis- 
sory note:  a  promisor,  called  the  maker,  and  a  promisee, 
called  the  payee.  A  bill  of  exchange  requires  three  parties : 
a  drawer,  or  the  one  who  makes  out  the  bill;  the  payee, 
the  person  to  whom  the  bill  is  payable ;  and  the  drawee,  the 
one  upon  whom  the  order  is  drawn.  (See  Forms  i  and  2 
in  Chapter  I.) 

The  validity  of  a  bill  or  note  is  not  affected  by  the  fact 
that  one  person  is  designated  in  more  than  one  capacity. 
For  example,  in  Form  i  Cridler  might  be  named  both  as 
maker  and  payee.  But  since  he  as  payee  could  not  sue  him- 
self as  maker,  the  instrument  does  not  become  an  enforce- 
able obligation  until  it  is  transferred  to  another  person  as 
indorsee.  So  a  bill  of  exchange  is  often  made  payable  to 
the  drawer,  or  the  same  person  is  designated  both  as  drawee 
and  payee.  In  either  case  the  bill  is  sufficient  in  form,  and 
upon  transfer  to  a  third  person  becomes  operative 

Negotiable  Instruments  Law,  §  8,  provides  that  a  nego- 
tiable instrument  "may  be  drawn  payable  to  the  order  of: 


REQUIREMENTS  OF  COMMERCIAL  PAPER   49 

(i)  A  person  who  is  not  maker,  drawer  or  drawee;  or  (2) 
the  drawer  or  maker;  or  (3)  the  drawee." 

Certainty  of  parties — drawer  and  maker — signature. 

—Section  33.  If  there  is  no  signature  by  the  maker  or 
drawer,  the  instrument  is  not  a  bill  or  note  (§  i,  i).  The 
maker  or  drawer  is  indicated  by  his  signature.  The  signa- 
ture need  not  be  at  the  end  of  the  instrument;  it  is  good 
if  it  is  in  the  body  of  the  instrument  and  intended  as  his 
signature.  For  example,  the  following  is  a  good  promis- 
sory note: 

I,  John  Smith,  promise  to  pay  A.  or  order,  $100  on  demand. 

Any  written  symbol  or  mark  is  sufficient  provided  the 
maker  intended  to  bind  himself  by  the  symbol  or  mark 
used.  He  may  even  use  figures  or  an  assumed  trade 
name. 

"But  no  person  is  liable  on  the  instrument  whose  sig- 
nature does  not  appear  thereon."  (Neg.  Instr.  Law,  §  18.) 
Thus  Rowelstone,  although  Walker  was  admittedly  acting 
as  agent  for  him  to  the  knowledge  of  Siffkin,  was  not 
liable  on  the  following  note: 

Two  months  aftej  date,  I  promise  to  pay  J.  Siffkin  or  order 
300  pounds  for  value  received. 

(Sgd.)  THOS.  WALKER. 

And,  conversely,  if  Walker  were  sued  on  the  instrument 
his  agency  would  be  no  defense  because  he  has  made  it 
his  note  by  signing  it  as  maker. 

Suppose  Walker  had  added  the  word  "agent"  after  his 
signature,  would  this  discharge  Walker  from  liability? 
Under  no  circumstance  could  Rowelstone  be  held  on  a 


50         THE  LAW  OF  COMMERCIAL  PAPER 

note  that  he  did  not  sign  or  upon  which  his  name  did  not 
appear.  Walker  would  not  be  bound  if  the  holder  of  the 
note  knew  that  Walker  was  acting  as  agent  and  did  not 
intend  to  bind  himself.  But,  on  the  other  hand,  if  the 
holder  did  not  know  that  Walker  did  not  intend  to  bind 
himself,  Walker  would  be  liable  on  the  note.  Simply  put- 
ting the  word  "agent"  after  the  signer's  name  does  not 
give  notice  to  the  holder  that  the  signer  does  not  intend 
to  be  bound.  The  courts  treat  it  as  a  word  of  identifica- 
tion, a  sort  of  description  of  the  signer,  just  as  they  do 
the  phrase  "of  Chicago,  111."  or  the  initials  M.  D.  after  a 
doctor's  signature.  At  most,  it  shows  the  signer's  business. 
The  same  reasoning  is  applied  to  instruments  signed 
"Walker,  agent  of  Rowelstone."  Rowelstone  is  not  bound 
because  his  signature  is  not  on  the  note,  but  Walker  is 
bound  because  the  note  bears  his  signature,  unless  the 
holder  knows  that  Walker  did  not  intend  to  be  bound. 
The  words  "Agent  of  Rowelstone"  after  his  signature  are 
treated  as  merely  descriptive  words.  Corporate  notes  are 
subjected  to  the  same  rules. 

The  question  then  will  naturally  rise  in  the  student's 
mind,  how  should  the  signature  be  written  to  bind  the  prin- 
cipal or  corporation?  The  usual  way  is  to  sign  the  name 
of  the  principal  and  then  under  it  the  following:  "per 
C.  D."  or  "per  C.  D.  agent."  In  signing  a  note  for  a 
corporation  the  name  of  the  corporation  should  be  used. 
Treat  the  corporation  the  same  as  if  it  was  an  individual. 
The  following  is  an  example  of  a  proper  signature  for  a 
corporation : 

The  Consumer  Co., 

by  Fred  N.  Uphani,  President. 


REQUIREMENTS  OF  COMMERCIAL  PAPER  51 

Certainty  of  parties — payee. — Section  34.  "Where  the 
instrument  is  payable  to  order,  the  payee  must  be  named  or 
otherwise  indicated  with  reasonable  certainty." 

(Neg.  Inst.  Law,  §  8.)  If  the  reader  will  call  to  mind  a 
note  he  will  recall  that  it  is  usually  payable  to  order  of 
some  designated  person,  or  to  bearer.  "Ninety  days  after 
date  I  promise  to  pay  to  the  order  of  John  Smith"  is  the 
usual  form  for  a  note,  and  "Pay  to  the  order  of  John 
Smith"  for  a  bill  of  exchange.  The  payee  must  be  desig- 
nated with  reasonable  certainty.  A  person  may  be  de- 
scribed by  his  trade  name  or  by  any  name  whatsoever  ' 
provided  the  payee  can  show  that  he  was  the  person  in- 
tended to  be  described  by  the  name  used.  For  example, 
Elizabeth  Willis  was  allowed  to  recover  a  note  payable  to 
Elizabeth  Willison,  upon  proof  that  she  was  the  person 
described  by  the  name  on  its,  face.  An  instrument  in  the 
form  of  a  note  payable  to  /*F.  B.  Bridge-man's  estate"  is 
held  to*  be  a  note  of  which  Bridgeman's  executor  is  payee. 
We  frequently  see  notes  and  bills  made  payable  to  "X 
Cashier."  In  such  cases  by  mercantile  usage  the  bill  or  note 
is  not  payable  to  X,  the  individual,  but  to  the  bank  of  which 
he  is  cashier.  "X  Cashier"  is  the  trade  name  of  the  bank. 
(Neg.  Inst.  Law,  §42.) 

Fictitious  payees. — Suppose,  however,  the  name  used  in 
a  note  is  not  intended  by  the  maker  to  designate  any  person 
bearing  that  name,  or  any  other  person,  but  that  the  maker 
intends  to  indorse  and  issue  the  note  himself.  In  such  a 
case  the  note  when  indorsed  by  the  maker  is  treated  as 
payable  to  bearer.  The  rule  is  thus  stated  in  §  9,  sub- 
division 3,  of  the  Negotiable  Instruments  Law.  "The  instru- 
ment is  payable  to  bearer  .  .  .  when  it  is  payable  to  the 
order  of  a  person  known  by  the  drawer  or  maker  to  be 
fictitious  or  nonexistent  or  of  a  living  person  not  intended 


52         THE  IAW  OF  COMMERCIAL  PAPER 

to  have  any  interest  in  it."  The  reason  for  the  rule  is  that 
if  the  instrument  were  treated  as  payable  to  order,  its  in- 
dorsement and  transfer  by  the  maker,  who  is  not  named 
as  payee,  would  not  pass  title  to  the  instrument,  and  the 
transferee  would  get  no  rights  on  the  instrument.  Thus 
the  maker,  by  transferring  the  note,  would  be  perpetrating 
a  fraud  upon  the  transferee.  To  avoid  this  result  the 
instrument  is  treated  as  payable  to  bearer.  But  if  the  maker 
supposed  that  the  name  in  the  note  designated  a  particular 
individual  and  intended  it  to  be  payable  to  the  person 
whom  he  supposed  he  had  designated,  but  in  fact  the 
name  did  not  designate  any  particular  individual,  the  note 
is  not  payable  to  bearer,  and  the  maker  is  not  liable  on  the 
note,  if  it  is  negotiated.  For  example,  in  Minet  v.  Gibson, ' 
Livesey  &  Co.  drew  a  bill  of  exchange  on  defendant  payable 
to  "J.  White."  The  defendant  accepted  the  bill.  "J.  White" 
was  not  intended  to  designate  any  person  and  this  was 
known  to  the  defendants.  Livesey  &  Co.  then  indorsed 
the  bill  to  the  plaintiffs.  It  was  held  that  the  defendants 
were  liable  on  the  bill.  It  was  no  defense  that  the  bill 
had  not  been  indorsed  "J-  White,"  because  the  acceptor 
knew  that  "J.  White"  was,  as  the  statute  says,  "a  fictitious 
or  nonexisting  person."  As  we  have  said,  the  decision 
would  have  been  different  had  Livesey  &  Co.,  the  drawees, 
not  known  that  "J.  White"  was  a  fictitious  name.  In  a 
note  or  bill  payable  to  "A,  executor  of  B's  estate,  and  his 
successors"  or  to  "A,  treasurer  of  the  B  corporation  for 
the  time  being,"  although  the  person  entitled  to  payment 
of  the  instrument  is  not  certain,  the  "office"  is  designated 
with  certainty  and  the  paper  is  really  payable  to  the  office. 
But  this  reason  cannot  be  applied  to  an  instrument  payable 
to  "A,  treasurer  of  X  Society  (unincorporated)  or  his  suc- 
cessors," for  here  there  is  no  regularly  constituted  legal  of- 
fice." Such  a  note  must  be  treated  either  as  payable  to  A,  the 
words  "treasurer,"  etc.,  being  disregarded,  in  which  event 


REQUIREMENTS  OF  COMMERCIAL  PAPER  53 

it  would  be  a  negotiable  instrument  payable  to  A;  or  as 
payable  to  whomever  happens  to  be  the  treasurer  at  the 
time  of  payment,  in  which  event  it  is  uncertain  as  to  payee 
and  is  not  a  bill  or  note.  The  former  construction  seems 
the  more  reasonable. 

Certainty  of  parties — the  drawee. — Section  35.  A  bill  is 
an  order  "addressed  by  one  person  to  another."  "A  bill 
may  be  addressed  to  two  or  more  drawees  jointly,  whether 
they  are  partners  or  not;  but  not  to  two  or  more 
drawees  in  the  alternative  or  in  succession/'  "Where  the 
instrument  is  addressed  to  a  drawee,  he  must  be  named  or 
otherwise  indicated  therein  with  reasonable  certainty." 
(Neg.  Inst.  Law,  §§  125,  127,  and  subdivision  5.)  Thus 
the  following  is  defective  as  a  bill  for  want  of  a  drawee; 

Monte vallo,  June  i,  1858. 
$2771.62 

Ten  months  after  date  pay  to  the  order  of  John  S.  Storrs 
two  thousand  seven  hundred  and  seventy-one  and  62/100  dol- 
lars, to ,  Mobile,  Ala. 

D.  E.  WATROUS. 

The  drawee,  like  the  payee,  must  be  named  with  rea- 
sonable certainty;  the  trade  name  may  be  used  as  in  the 
case  of  the  payee.  It  has  even  been  held  that  writing  an 
address  on  the  instrument  which  appears  to  be  a  designa- 
tion of  the  place  of  payment,  rather  than  a  description  of 
the  person  to  pay,  may  be  interpreted  as  a  mode  of  desig- 
nating the  person  there  residing  or  doing  business  as  the 
drawee.  Thus  John  Horson  &  Co.  was  held  drawee  of  an 
instrument  expressly  naming  no  drawee,  but  addressed  "At 
Messrs.  John  Horson  &  Co." 

An  instrument  to  be  negotiable  must  be  payable  to 
order  or  to  bearer. — Section  36.  When  an  instrument  con- 


54         THE  LAW  OF  COMMERCIAL  PAPER 

forms  to  all  of  the  foregoing  requirements,  it  is  not  nego- 
tiable unless  it  is  payable  to  order  or  to  bearer.  Thus  the 
following  instrument  is  not  negotiable : 

Madison,  Wis.,  March  4,  1910. 
$1000 

Ninety  days  after  date  I  promise  to  pay  John  Jones  One 
Thousand  Dollars.  Value  received. 

A.  B.  MARCUS. 

"The  instrument  is  payable  to  order  where  it  is  drawn 
payable  to  the  order  of  a  specified  person  or  to  him  or  his 
order"  (Neg.  Inst.  Law,  §  8).  The  usual  form  of  the  nego- 
tiable instrument  is  "Pay  A  or  order"  or  "Pay  to  the 
order  of  A."  Payable  to  "A  or  assigns"  is  not  negotiablf. 

"The  instrument  is  payable  to  bearer:  (i)  When  it  is 
expressed  to  be  so  payable;  or  (2)  When  it  is  payable  to  a 
person  named  therein  or  bearer;  or  ...  (4)  When  the 
name  of  the  payee  does  not  purport  to  be  the  name  of  any 
person."  (Neg.  Inst.  Law,  §9.)  The  word  "bearer"  is  not 
the  only  word  that  may  be  used.  Other  words  of  like  im- 
port will  serve  the  purpose  as  well.  Thus  a  note  payable 
to  "holder"  is  payable  to  bearer.  The  usual  form  of  a 
bearer  instrument  is  "Pay  to  bearer,"  or  "Pay  to  A  or 
bearer."  But  "Pay  to  the  bearer  A"  does  not  make  th£ 
instrument  negotiable.  Here  the  word  "bearer"  is  used  to 
identify  A.  An  instrument  drawn  payable  to  "Cash"  is 
payable  to  bearer.  "Cash"  is  an  impersonal  payee  which 
cannot  indorse.  If  the  instrument  is  to  be  negotiable,  it 
must  be  treated  as  payable  to  bearer. 

Date,  value  received,  place  of  payment. — Section  37. 
There  are  a  few  things  more  to  be  considered  before 
leaving  the  formal  requirements  of  bills  and  notes.  Many 
people  have  an  idea  that  a  date  is  absolutely  essential  upon 


REQUIREMENTS  OF  COMMERCIAL  PAPER  55 

a  bill  or  note,  but  the  date  only  serves  the  purpose  of  fixing 
the  time  of  payment.  The  maker  of  an  instrument  may 
regulate  the  day  of  payment  by  dating  the  instrument 
"back"  or  "ahead."  Thus  if  on  Jan.  I,  1910,  the  maker 
issued  his  note  dated  "Dec.  I,  1909,"  and  payable  "Three 
months  after  date,"  it  would  be  payable  March  I,  and  not 
April  i,  1910.  If  the  same  were  dated  Feb.  i,  1910,  it 
would  be  payable  May  i,  1910.  The  instrument  in  such  a 
case  would  be  a  valid  instrument.  In  the  case  of  an  instru- 
ment issued  "payable  three  months  after  date"  and  not 
dated,  it  is  payable  three  months  from  the  date  of  issue; 
again,  if  by  mistake  the  instrument  was  dated  Jan.  i,  1909, 
instead  of  Jan.  i,  1910,  it  is  payable  from  the  date  of. issue. 
You  will  find  a  very  good  summary  of  the  rules  as  to  dates 
in  §§6  (i),  17  (3),  n,  and  12  of  the  Negotiable  Instru- 
ments Law. 


A  bill  or  note  need  "not  specify  the  value  given,  or  that 
any  value  has  been  given  therefor." 

A  bill  or  note  need  "not  specify  the  place  where  it  is 
drawn  or  the  place  where  it  is  payable." 

"The  validity  and  negotiable  character  of  an  instrument 
are  not  affected  by  the  fact  that  it  bears  a  seal." 

Summary  definition  of  a  bill  and  of  a  note.— Section  38. 
"A  bill  of  exchange  is  an  unconditional  order  in  writing 
addressed  by  one  person  to  another,  signed  by  the  person 
giving  it,  requiring  the  person  to  whom  it  is  addressed  to 
pay  on  demand,  or  at  a  fixed  or  determinable  future  time, 
a  sum  certain  in  money  to  order  or  to  bearer."  (Neg.  Inst. 
Law,  §  125.) 


56         THE  LAW  OF  COMMERCIAL  PAPER 

"A  negotiable  promissory  note  ...  is  an  unconditional 
promise  in  writing  made  by  one  person  to  another,  signed 
by  the  maker,  engaging  to  pay  on  demand  or  at  a  fixed 
or  determinable  future  time,  a  sum  certain  in  money  to 
order  or  to  bearer  .  .  ."  (Neg.  Inst.  Law,  §  183.) 

Interpretation. — Section  39.  The  Statute  gives  the  rules 
for  the  interpretation  of  negotiable  instruments  in  §  17. 


CHAPTER  IV 

INCEPTION    OF    THE    INSTRUMENT    AS    AN    OBLIGATION 

Intentional  signing. — Section  40.  An  instrument  in  every 
formal  respect  a  completed  promissory  note  or  bill  of 
exchange  is  of  no  legal  effect  unless  the  maker  or  drawer 
signed  the  paper  intending  to  sign  a  bill  or  note.  Thus,  in 
Walker  v.  Ebert  (29  Wis.  194 — 1871),  the  defendant,  a 
German  unable  to  read  and  write  English,  was  induced  by 
the  payees  to  sign  an  instrument,  in  form  a  promissory 
note,  in  reliance  upon  their  false  statements  that  it  was  a 
contract  appointing  the  defendant  agent  to  sell  a  patent 
right.  The  payees  sold  the  instrument  to  the  plaintiff  who 
knew  nothing  of  the  fraud.  It  was  held  that  the  defendant 
was  not  liable.  The  instrument,  although  complete  in  form, 
was  not  the  defendant's  note  and  the  plaintiff  acquired 
nothing  by  his  purchase  of  the  paper. 

Signing  without  reading:  carelessness. — Section  41.  In 
such  a  case,  however,  the  defendant  may  have  been  so 
careless  in  affixing  his  signature  to  a  paper,  of  the  contents 
of  which  he  is  ignorant,  that  it  would  be  unjust  to  allow 
him  to  escape  liability  to  the  innocent  purchaser.  When 
this  is  true  the  courts  refuse  to  allow  the  apparent  maker 
the  defense  that  he  did  not  intentionally  sign  the  note  in 
question.  Thus,  in  Chapman  v.  Rose  (56  N.  Y.  137 — 
1874),  the  defendant  signed  a  document  in  form  a  promis- 
sory note  for  $270  payable  to  Miller  or  bearer.  The  de- 

57 


58         THE  LAW  OF  COMMERCIAL  PAPER 

fendant,  misled  by  the  false  statements  of  Miller,  supposed 
he  was  signing  the  duplicate  of  an  order  for  farm  machin- 
ery, the  original  of  which  he  had  delivered  to  Miller  a  few 
moments  before.  The  paper  having  passed  into  the  hands 
of  an  innocent  purchaser,  it  was  held  that  the  defendant 
was  liable  upon  the  note.  The  Court  deemed  the  conduct 
of  the  defendant  so  careless  in  signing  without  reading 
when  he  might  have  done  so,  that  it  was  unjust  to  allow 
him  to  set  up  the  defense  that  he  did  not  intentionally  sign 
a  note. 

Carelessness  a  matter  of  fact. — Section  42.  The  ques- 
tion, however,  whether  the  defendant  has  been  careless  is 
one  of  fact  about  which  courts  and  juries  may  differ,  al- 
though there  may  be  no  dispute  as  to  the  rule  of  law.  In 
Lewis  v  Clay  (67  Law  Jour.,  Queen's  Bench  224 — 1898), 
Clay  affixed  his  signature  to  instruments  in  the  form  of 
notes  for  upward  of  $55,000  under  the  following  circum- 
stances. Lord  Neville,  whom  the  defendant  had  known 
intimately  for  some  years,  requested  the  defendant,  soon 
after  he  became  of  age,  to  sign  certain  documents  as  wit- 
ness of  Neville's  signature  thereto.  The  face  of  the  docu- 
ments was  covered  with  blotting  paper,  with  holes  clipped 
out  leaving  places  for  the  defendant's  signatures.  Neville 
told  the  defendant  that  the  documents  related  to  family 
affairs  of  a  private  nature,  the  contents  of  which  he  would 
prefer  the  defendant  not  to  see.  The  defendant,  believing 
the  statements  of  Neville,  signed  his  name  through  the 
openings  in  the  blotting  paper.  It  was  held  that  the  de- 
fendant was  not  liable  to  an  innocent  purchase  of  the  docu- 
ments. They  were  not  the  defendant's  notes,  nor  did  the 
Court  consider  that  the  defendant's  conduct  was  such  as 
to  make  it  unjust  for  him  to  set  up  that  he  never  intended 
to  sign  the  notes. 


INCEPTION  OF  INSTRUMENT  OBLIGATION     59 

Intentional  signing  induced  by  fraud. — Section  43.  The 
class  of  cases  we  have  been  discussing  should  be  carefully 
distinguished  from  cases  where  the  maker  intended  to 
make  and  sign  the  note  upon  which  he  is  sued,  but  would 
not  have  intended  to  sign  had  he  known  the  true  facts.  In 
Miller  v.  Finley  (26  Mich.  249 — 1872),  the  defendant 
was  induced  to  sign  a  note  for  the  price  of  a  worthless 
patent  right,  which  was  fraudulently  represented  by  the 
payee  to  be  a  valuable  invention.  The  payee  sold  the 
note  to  the  plaintiff,  who  knew  nothing  of  the  fraud  prac- 
ticed upon  the  defendant.  It  was  held  that  the  defendant 
was  liable.  His  intention  to  make  and  sign  the  note  in 
dispute  was  unquestioned.  He  would  not  have  so  in- 
tended had  he  known  that  the  patent  was  valueless,  but  he 
did  not  know  that  fact  and  in  consequence  intended  to  sign. 
Of  course,  in  such  a  case  the  payee  who  practiced  the 
fraud  would  not  recover  upon  the  instrument  for  the  reason 
that  it  would  be  unjust  to  allow  him  to  enforce  the  obliga- 
tion and  retain  the  proceeds,  and  not  because  the  note  was 
not  a  valid  negotiable  instrument. 

' 'Delivery'* — Section  44.  In  addition  to  the  intentional 
signing  of  the  instrument,  something  further  is  necessary 
to  give  it  an  inception  as  an  obligation.  In  order  that  the 
bill  or  note  may  have  legal  effect,  it  must  have  passed  out 
of  the  possession  of  the  maker  or  drawer. 

A  note  found  among  the  maker's  papers  after  his  death 
imposes  no  obligation  upon  him  or  his  estate.  But  if  in 
any  manner  a  completed  instrument  passes  out  of  the 
possession  of  the  signer  into  that  of  the  payee  or  bearer, 
the  instrument  imposes  a  legal  obligation  on  the  maker  or 
drawer.  The  mere  involuntary  parting  with  possession, 
i.  e.,  delivery  without  intention  to  deliver,  gives  the  instru- 
ment its  inception  as  a  bill  or  note.  The  inception  of 


60         THE  LAW  OF  COMMERCIAL  PAPER 

the  instrument  may  thus  result  from  a  theft  or  forcible 
taking  by  the  payee  or  bearer  from  the  signer,  or  from 
fraud  or  duress  practiced  by  the  former  upon  the  latter, 
as  well  as  from  an  intentional  delivery  by  the  maker  or 
drawer. 

Position  of  fraudulent  payee  or  bearer.— Section  45. 
The  payee  or  bearer  who  has  secured  possession  of  the 
instrument  by  theft,  fraud,  duress,  or  under  such  circum- 
stances that,  to  his  knowledge,  the  maker  does  not  intend 
the  instpument  to  operate  for  the  payee's  benefit,  is  not  per- 
mitted personally  to  enforce  it.  This  is  not  because  the 
stolen  instrument  is  not  the  obligation  of  the  signer,  but 
because  the  payee,  in  consequence  of  the  manner  in  which 
he  secured  the  instrument,  is  compelled  on  obvious  grounds 
of  justice  to  hold  it,  or  its  proceeds  when  collected,  for 
the  defrauded  signer.  It  would  be  profitless  to  permit  him 
to  sue  the  maker  on  the  note,  when  the  maker  himself 
could  turn  about  and  recover  from  the  thief  either  the 
instrument  or  any  money  which  the  thief  has  received  upon 
it. 

Position  of  payee  in  case  of  conditional  delivery.— 
Section  46.  Similarly,  if  the  maker  or  drawer  delivers  the 
instrument  to  the  payee  upon  condition  that  it  shall  not  be 
enforced  except  upon  the  happening  of  a  certain  con- 
tingency, it  is  not  enforceable  by  the  payee  until  the  con- 
dition is  fulfilled.  Thus,  in  McFarland  v.  Sikes  (54  Conn. 
250 — 1886),  the  defendant  had  delivered  a  promissory  note 
for  $300  payable  to  the  plaintiff  upon  condition  that  the 
instrument  was  to  be  returned  when  demanded.  The  de- 
fendant demanded  the  instrument,  but  the  plaintiff  refused 
to  return  it  and  brought  action  on  the  note.  It  was  held  that 
the  plaintiff  could  not  recover.  The  real  reason  for  the  de- 
cision is  that,  were  the  plaintiff  allowed  to  recover  on  the 


•INCEPTION  OF  INSTRUMENT  OBLIGATION     61 

note,  the  defendant  could  turn  about  and  recover  from  the 
plaintiff  for  breach  of  his  contract  to  return  the  note  on 
demand.  The  parties  would  then,  after  two  actions,  be  in 
the  same  position  as  if  no  recovery  had  been  allowed  in 
the  first  instance. 

v 

That  the  reasons  why  a  payee  or  bearer  who  has  obtained 
possession  of  a  bilfc^ffr  note  upon  the  maker  or  drawer  by 
theft,  fraud,  or  duress,  or  upon  condition  that  he  will  not 
enforce  it,  are  those  suggested,  and  not  that  the  instru- 
ment has  not  had  the  inception,  is  made  clear  by  the  cases 
discussed  below.  In  those  cases,  had  the  paper  not  been 
the  existing  obligation  of  the  maker  or  drawer  in  the  thief's 
hands,  the  thief's  transfer  to  the  plaintiff  would  have  vested 
no  right  against  the  maker  or  drawer  in  the  plaintiff;  and 
the  case  would  be  like  the  sale  of  a  stolen  watch  which 
vests  no  right  in  purchaser. 

Position  of  innocent  purchaser  of  the  instrument- 
Section  47.  If  the  thief,  or  fraudulent  payee,  or  the  payee 
who  holds  the  note  subject  to  a  condition,  sells  the  instru- 
ment to  one  who  knows  nothing  of  the  wrong  of  the  payee, 
the  purchaser  is  entitled  to  recover  upon  the  instrument 
from  the  maker.  Thus,  in  Shipley  v.  Carroll  (45  111.  285), 
it  appeared  that  the  defendant  made  and  signed  the  note 
in  suit  as  a  matter  of  amusement  with  no  design  of  deliv- 
ering it  to  the  payee,  and  that  the  payee  stole  the  note  from 
the  maker  and  sold  it  to  the  plaintiff  who  had  no  notice 
of  the  theft.  It  was  held  that  the  note  was  an  obligation 
of  the  maker's,  and  that  the  plaintiff  who  bought  the  note 
innocently  was  guilty  of  no  wrong,  breach  of  duty,  nor 
injustice  in  enforcing  it.  In  Clark  v.  Johnson  (54  111.  296— 
1870),  the  same  rule  was  applied.  In  that  case  the  maker, 
who  had  signed  a  note  complete  in  form,  was  about  to 
insert  a  condition  in  it  before  delivery,  when  the  payee 


62         THE  LAW  OF  COMMERCIAL  PAPER 

snatched  the  note  from  the  maker's  hands,  made  off  with  it, 
and  sold  it  to  the  plaintiff,  an  innocent  purchaser.  The 
maker  was  held  liable.  The  same  results  have  been  reached 
under  the  Negotiable  Instruments  Law  (Greeser  v.  Sugar- 
man,  76  N.  Y.  Supp.  922 — 1902;  Massachusetts  Bank  v 
Snow,  157  Mass.  159— 1905),  which  provides  as  follows: 

"Section  16.  Every  contract  on  a  negotiable  instrument 
is  incomplete  and  revocable  until  delivery  of  the  instrument 
for  the  purpose  of  giving  effect  thereto.  As  between  im- 
mediate parties,  and  as  regards  a  remote  party  other  than 
a  holder  in  due  course,  the  delivery,  in  order  to  be  ef- 
fectual, must  be  made  either  by  or  under  the  authority 
of  the  party  making,  drawing,  accepting  or  indorsing,  as 
the  case  may  be;  and  in  such  case  the  delivery  may  be 
shown  to  have  been  conditional  or  for  a  special  purpose 
only,  and  not  for  the  purpose  of  transferring  the  property 
in  the  instrument.  But  where  the  instrument  is  in  the 
hands  of  the  holder  in  due  course,  a  valid  delivery  thereof 
by  all  parties  prior  to  him  so  as  to  make  them  liable  to 
him,  is  conclusively  presumed.  .  .  ," 

Incomplete  instruments. — Section  48.  If  a  person  signs 
a  promissory  note  or  bill  of  exchange  incomplete  in  some 
particular,  as,  for  example,  the  amount  or  date  of  pay- 
ment ;  or  signs  a  blank  printed  form  for  a  note  or  bill ;  or 
puts  his  signature  on  a  piece  of  paper  wholly  blank  and 
delivers  it  to  another  with  authority  to  fill  in  the  blank 
or  blanks,  so  as  to  make  a  complete  instrument,  the  signer 
is  bound  on  the  bill  or  note  if  the  blanks  are  filled  in  in 
accordance  with  the  authority  by  any  holder,  exactly  as  he 
would  have  been  had  he  himself  filled  up  the  blanks  before 
delivery.  Furthermore,  the  signer  of  the  incomplete  instru- 
ment is  assumed  to  have  authorized  any  holder  to  fill  in 
the  blanks  in  any  manner  he  desires,  and  in  an  action 


INCEPTION  OF  INSTRUMENT  OBLIGATION  63 

against  the  signer  upon  the  instrument  he  must  prove  that 
the  authority  he  gave  has  actually  been  exceeded  if  that  is 
the  fact.  In  the  words  of  the  Statute  (§  14)  :  "Where  the; 
instrument  is  wanting  in  any  material  particular,  the  persoi? 
in  possession  thereof  has  a  prima  facie  authority  to  com- 
plete it  by  filling  up  the  blanks  therein.  And  a  signature  on 
a  blank  paper  delivered  by  the  person  making  the  signa- 
ture in  order  that  the  paper  may  be  converted  into  a  nego- 
tiable instrument  operates  as  a  prima  facie  authority  to  fill 
it  up  as  such  for  any  amount.  In  order,  however,  that  any 
such  instrument  when  completed  may  be  enforced  ...  it 
must  be  filled  up  strictly  in  accordance  with  the  authority 
given  and  within  a  reasonable  time."  For  example,  in 
Cruchley  v.  Clarence  (2  Maule  &  S.  90 — 1813),  the  de- 
fendant drew  a  bill  on  M.  payable  "to  the  order  of = — ' 

and  delivered  it  to  Vashon,  who  transferred  it  to  the  plain- 
tiff. The  plaintiff  inserted  his  own  name  in  the  instru- 
ment a$  payee  and  sued  the  defendant.  It  was  held  that 
the  plaintiff  must  be  assumed  to  have  authority  to  fill  in 
the  blank  as  he  saw  fit,  the  defendant  not  having  shown 
that  he  had  limited  Vashon's  authority  in  respect  to  the 
filling  of  the  blank;  and  the  plaintiff  prevailed.  An  illus- 
tration of  the  other  aspect  of  this  rule  is  Awde  v.  Dixon 
(6  Exch.  869 — 1851).  In  that  case  the  defendant  signed 
a  note  blank  as  to  date  and  payee,  and  delivered  it  to  his 
brother,  authorizing  him  to  fill  the  blanks  and  negotiate  it 
after  one  Robinson  had  signed  the  note  as  comaker  with 
the  defendant.  Without  securing  Robinson's  signature,  the 
brother  took  the  note  to  the  plaintiff,  who  bought  it  in  good 
faith  and  filled  in  the  date  and  his  own  name  as  payee.  It 
was  held  that  the  plaintiff  could  not  recover,  it  appearing 
that  the  defendant  had  authorized  the  filling  in  of  the 
blanks  only  in  the  event  of  Robinson's  signing;  the  pre- 
sumption of  authority  arising  from  possession  of  the  note 


64         THE  LAW  OF  COMMERCIAL  PAPER 

with   unfilled  blanks  was   rebutted.      (See  also,   to   same 
effect,  Boston  Steel  Co.  v.  Steuer,  183  Mass.  140 — 1903.) 

Innocent  purchaser  of  instrument  completed  in  excess 
of  authority. — Section  49.  Suppose,  however,  that  the 
plaintiff  had  purchased  the  notes  from  the  brother  after 
he  had,  in  breach  of  his  authority,  filled  the  blanks,  and 
that  the  plaintiff  had  no  knowledge  that  the  note  was  not 
complete  when  signed  by  defendant.  In  such  a  jcase  the 
plaintiff  would  recover.  (Putnam  v.  Sullivan,  4  Mass.  45 — 
1808.)  The  violation  of  his  authority  by  the  defendant's 
agent  would  be  no  reason  for  defeating  a  purchaser  in 
good  faith  of  the  completed  note.  The  Statute  (§  14) 
states  the  rule  as  follows:  "But  if  any  such  instrument, 
after  completion,  is  negotiated  to  a  holder  in  due  course 
it  is  valid  and  effectual  for  all  purposes  in  his  hands  and 
he  may  enforce  it  as  it  had  been  filled  up  strictly  in  accord- 
ance with  the  ^authority  given  and  within  a  reasonable 


Incomplete  instruments  not  intentionally  delivered  as 
such. — Section  50.  Up  to  this  point  we  have  been  dealing 
with  blank  pieces  of  paper  and  incomplete  notes  and  bills 
which  have  been  signed  and  delivered  by  the  signers  "in 
order  that  the  paper  may  be  converted  into  a  negotiable 
instrument."  If  the  signer  of  a  blank  sheet  of  paper  in- 
tended it  for  some  other  purpose,  or  if  the  signer  of  an 
incomplete  note  never  intrusted  any  one  with  the  paper  for 
that  purpose,  the  signer  is  not  chargeable  upon  the  paper, 
even  though  after  its  completion  it  was  transferred  to  an 
innocent  purchaser.  In  Caulkins  v.  Whisler  (29  la.  495— 
1870),  the  defendant  was  employed  by  Smith  as  agent  to 
sell  farm  machinery.  At  Smith's  request  defendant  signed 
his  name  upon  a  blank  piece  of  paper,  which  Smith  was 
to  send  to  the  manufacturers  of  the  machinery,  so  that  they 


INCEPTION  OF  INSTRUMENT  OBLIGATION  65 

might  know  defendant's  signature  upon  the  orders  he 
might  send  in.  The  note  upon  which  the  action  was  brought 
was  printed  over  defendant's  signature.  The  defendant 
was  not  liable.  In  another  case  the  defendant  wrote  his 
signature  as  acceptor  on  several  printed  blank  forms  for 
bills  of  exchange  and  left  them  in  a  drawer  of  his  desk. 
The  blanks  were  stolen,  filled  up  and  negotiated  to  the 
plaintiff,  an  innocent  purchaser.  It  was  held  that  the 
plaintiff  could  not  recover.  (Buxendale  v.  Bennett,  3 
Queen's  Bench  Div.  525—1878.)  The  Statute  (§  15)  thus 
codifies  the  result  of  these  cases :  Where  an  incomplete 
instrument  has  not  been  delivered,  it  "will  not,  if  com- 
pleted and  negotiated,  without  authority,  be  a  valid  con- 
tract in  the  hands  of  any  holder." 

Presumption  of  delivery. — Section  51.  That  a  negotiable 
instrument  has  not  had  a  valid  inception  is  a  fact  which 
must  be  proved  in  the  first  instance  by  the  defendant  who 
is  sued,  upon  it.  In  other  words,  from  the  mere  produ)n 
tion  in  court  by  the  plaintiff  of  a  completed  instrume0(j 
signed  by  the  defendant,  it  is  inferred,  as  a  matter  of  faat 
that  the  instrument  produced  is  the  obligation  of  tl;s 
signer.  "Where  the  instrument  is  no  longer  in  the  pos. 
session  of  a  party  whose  signature  appears  thereon,  a  valid 
and  intentional  delivery  by  him  is  presumed  until  the 
contrary  is  proved."  (Neg.  Inst.  Law,  §  16.) 

What  a  consideration  is. — Section  52.  A  simple  promise 
is  unenforceable  in  law.  If  A,  intending  to  benefit  B, 
promises  to  pay  him  $100,  B  cannot  compel  A  to  pay.  But 
if  a  consideration  moved  from  B  to  A  for  the  promise, 
there  would  be  a  valid  contract  and  A's  promise  would  be 
binding.  A  consideration  is  a  surrender  of  a  legal  right  or 
a  promise  to  surrender  a  legal  right.  Thus,  if  B  had  paid 
A  $100,  or  delivered  property  to  him,  or  turned  hand 


66         THE  LAW  OF  COMMERCIAL  PAPER 

springs  for  A's  amusement,  or  had  promised  to  do  any  of 
those  acts  in  exchange  for  A's  promise  to  pay  $100,  B 
could  hold  A  to  the  performance  of  his  promise. 

Consideration  necessary  for  negotiable  instrument.— 

Section  53.  The  doctrine  of  consideration  was  of  pure 
Common  Law  origin,  and  it  is  probable  that  originally  it  had 
no  place  in  the  law  of  bills  and  notes,  which  has  its  roots 
in  the  Law  Merchant.  Thus,  if  A  made  a  promissory  note 
payable  to  B,  and  delivered  it  to  the  payee  as  a  gift,  it  was 
once  held  that  B  could  enforce  the  note.  (2  Blackstone's 
Commentaries  445,  446;  Bowers  v.  Hurd,  10  Mass.  427 — 
1813.)  But  the  Common  Law  courts,  failing  to  dis- 
tinguish between  Common  Law  contract  obligations  and 
bills  and  notes,  have  attempted  to  apply  the  doctrine  of 
consideration  to  negotiable  instruments.  Forced  construc- 
tions of  simple  business  transactions  and  arbitrary  distinc- 
tions have  been  the  result.  Nevertheless  the  Statute  enacts 
\  28)  that  "absence  ...  of  consideration  is  a  matter 
defense."  Today,  therefore,  in  the  case  supposed  of  the 
ft  by  A  of  his  note  to  B,  the  absence  of  consideration 
^  vrould  be  a  defense  to  A.  ( Starr  v.  Starr,  9  Oh.  St.  75 — 
1858.)  Again,  if  B,  the  payee  of  the  note  for  which  he 
had  given  a  consideration  to  the  maker,  indorsed  the  note 
to  C  as  a  gift,  C  could  not  enforce  B's  contract  as  indorser 
against  him  because  no  consideration  was  given  by  C. 
(Easton  v.  Pratchett,  i  Crompton,  M.  &  R.  798 — 1834.) 

A  preexisting  debt  as  a  consideration. — Section  54.  The 
Statute  declares  (§25)  that  "any  consideration  sufficient 
to  support  a  simple  contract  may  be  a  consideration  for  a 
negotiable  instrument."  We  are  thus  thrown  back  to  our 
Common  Law  definition  of  consideration  as  a  surrender  of 
a  legal  right,  or  a  promise  to  surrender  a  legal  right. 


INCEPTION  OF  INSTRUMENT  OBLIGATION  67 

If  A  owes  B  $100  and  B  accepts  in  satisfaction  and  dis- 
charge of  the  debt  A's  notes  for  that  amount,  the  surrender 
by  B  of  the  old  debt  in  exchange  for  the  note  is  the 
surrender  of  a  legal  right  and  a  consideration  for  the  note. 
(Union  Bank  v.  Jefferson,  101  Wis.  452 — 1899.)  For  the 
same  reason,  if  B  had  accepted  X's  note  in  payment  of 
A's  debt  to  B,  the  surrender  by  B  of  A's  debt  would  be 
a  consideration  for  X's  note.  (Petrie  v.  Miller,  67  N.  Y. 
Supp.  1042;  173  N.  Y.  596 — 1901.)  In  both  of  these 
cases  B's  original  claim  against  A  has  been  absolutely  dis- 
charged, and  his  only  rights  are  upon  the  instrument. 
Thus,  in  the  second  case  B  could  look  to  X  only  for  pay- 
ment. It  is  held,  however,  that  unless  the  parties  ex- 
pressly agree  that  the  note  shall  extinguish  the  debt  for 
which  it  was  given,  it  does  not  have  that  effect,  and  that 
if  the  note  is  not  paid,  B,  the  creditor,  may  sue  A  on  the 
original  debt.  (Ward  v.  Evans,  2  Ld.  Raymond  928 — 1702.) 
If,  then,  B  accepts  X's  note  on  account  of,  but  not  in  dis- 
charge of,  a  debt  due  from  A,  is  there. any  consideration 
for  the 'instrument?  What  legal  right  has  B  surrendered 
or  promised  to  surrender?  In  such  a  case  it  is  held  that 
from  B's  acceptance  of  the  note  on  account  of  the  debt  is 
"implied"  a  promise  on  his  part  to  suspend  his  right  to  sue 
A  until  after  the  note  becomes  payable.  Thus,  if  the  note 
were  payable  three  months  after  date,  B's  "implied"  prom- 
ise not  to  sue  A  on  the  debt  for  three  months  is  said  to 
be  the  consideration  of  the  note.  (Thompson  v.  Gray,  63 
Me.  228 — 1874.)  The  same  result  is  attained  by  the  same 
reasoning  where  B  accepts  A's,  the  debtor's,  own  note 
payable  after  date  on  account  of  A's  debt.  (Baker  v. 
Walker,  14  M.  &  W.  465—1845.)  It  is  true  in  these  cases 
that  B,  after  accepting  the  note  for  the  debt,  cannot  sue 
A  until  the  note  has  become  due.  But  the  reason  for  this 
is  not  that  B  has  impliedly  promised  not  to  sue,  but  the 
rule  of  law  that  the  acceptance  of  a  negotiable  instrument 


68         THE  LAW  OF  COMMERCIAL  PAPER 

for  a  debt  is  conditional  payment  and  ipso  facto  suspends 
the  debt.  (Ward  v.  Evans,  2  Ld.  Raymond  928 — 1702; 
Martens-Turner  Co.  v.  Mackintosh,  17  N.  Y.  App.  Div. 
41^-1897.) 

Suppose,  however,  the  bill  or  note  taken  on  account  of 
the  debt  is  payable  on  demand.  In  such  a  case  the  note 
would  be  due  at  once,  and  if  not  paid  forthwith  B  might 
immediately  bring  an  action  against  A  on  the  original 
debt.  Is  there  any  implied  promise  on  the  part  of  the  credi- 
tor who  takes  such  an  instrument  not  to  sue  his  debtor? 
It  seems  there  is  not,  and  yet  the  courts  hold  that  the 
instrument  is  binding  whether  it  be  the  note  of  the  debtor 
himself  or  a  third  person.  (Childs  v.  Monins,  2  Broderip  & 
B.  450 — 1821 ;  Sison  v.  Kidman,  3  Manning  &  Gr.  810— 
1842;  57  N.  Y.  641—1874.  But  see  Strong  v.  Sheffield,  144 
N.  Y.  392 — 1895,  for  an  exception  to  this  rule  in  New 
York  and  some  other  states.) 

The  result  of  all  these  decisions  is  summed  up  in  the 
Negotiable  Instruments  Law  as  adopted  in  most  states  as 
follows:  "An  antecedent  or  preexisting  debt  constitutes 
consideration,  and  is  deemed  such  whether  the  instrument 
is  payable  on  demand  or  at  a  future  time." 

The  real  explanation  of  the  cases  holding  a  note  taken 
on  account  of  a  debt  to  be  binding,  is  that  no  consideration 
is  necessary  for  a  bill  or  note.  But  the  courts  and  the 
Statute  first  force  the  Common  Law  requirement  of  con- 
sideration upon  negotiable  instruments,  and  then  give  a 
fanciful  interpretation  to  simple  business  transactions  in 
order  to  absolve  it. 

Another  and  more  striking  instance  of  where  an  obliga- 
tion on  a  negotiable  instrument  is  held  binding  without  a 


INCEPTION  OF  INSTRUMENT  OBLIGATION  69 

consideration,  although  the  courts  and  Statute  profess  to 
require  one,  is  the  case  where  A,  being  indebted  to  C,  draws 
a  bill  of  exchange  on  B,  who  is  under  no  obligation  what- 
ever to  A,  ordering  B  to  pay  $100  to  C.  A  delivers  the 
bill  to  the  payee.  Upon  presentation  to  C  of  the  order  to 
B,  he,  as  an  act  of  friendship  or  business  accommodation, 
"accepts,"  i.  e.,  promises  to  pay,  the  instrument.  Clearly 
in  this  case  neither  A  nor  C  has  surrendered  or  promised  to 
surrender  any  legal  right,  yet  it  is  well  settled  law  that  B 
is  liable  on  his  acceptance.  (Commercial  Bank  v.  Norton, 
i  Hill  501—1841.) 

Consideration,  example  of. — Section  55.  Of  course, 
wherever,  as  in  the  case  of  an  instrument  accepted  in  abso- 
lute extinguishment  of  an  existing  debt,  there  really  is  a 
consideration  for  the  maker's,  or  indorsees,  or  acceptor's 
promise,  viewed  as  a  simple  Common  Law  promise,  the  in- 
strument is  enforceable. 

Thus)  where  the  creditor  receiving  a  negotiable  instru- 
ment in  fact  promises  to  refrain  from  suing  on  the  debt 
until  the  instrument  matures,  or  at  the  request  of  the  debtor 
actually  refrains  from  suit,  the  instrument  is  binding. 
(Mansfield  v.  Corbin,  2  Cush.  151 — Mass.  1848;  Russell  v. 
Bassett,  66  Atl.  531 — Conn.  1907.)  Or  if  A  loans  money  to 
B  and  takes  B's  note  or  a  third  party's  note  as  collateral 
security  for  a  loan,  the  advance  of  money  by  A  is  a  con- 
sideration for  the  note  of  either  B  or  X.  (Black  v.  Bank, 
54  Atl.  88 — Ind.  1903 ;  Metropolitan  Co.  v.  Springer,  90 
N.  Y.  Supp.  376 — 1904;  Merrick  v.  Alderman,  60  Atl.  109 
— Conn.  1905.)  Or  if  A  holds  B's  note  as  collateral  secur- 
ity for  B's  debt,  A's  surrender  of  the  note  in  exchange  for 
X's  note  substituted  as  collateral  security  for  the  debt  is  a 
consideration  for  X's  note.  (Allerton  Bank  v.  Clay  Co., 
66  Atl.  252 — Pa.  1907.)  Or  if  A  gives  his  note  to  B  in 


70         THE  LAW  OF  COMMERCIAL  PAPER 

exchange  for  B's  note  to  A,  the  giving  of  each  note  is  a 
consideration  for  the  other.  (Milius  v.  Kaufman,  93  N.  Y. 
Supp.  669—1905.) 

Moral  consideration.— Section  56.  As  the  Statute  says, 
any  consideration  sufficient  to  support  a  simple  contract 
may  be  a  consideration  for  a  negotiable  instrument,  and  we 
find  the  anomalous  doctrine  of  "moral  consideration"  recog- 
nized in  the  law  of  Bills  and  Notes.  So  if  A  gives  his 
note  to  B  for  a  debt  which  is  barred  by  the  statute  of 
limitations,  or  by  A's  discharge  in  bankruptcy,  or  voidable 
on  the  ground  of  A's  infancy  or  insanity,  A's  note  is  en- 
forced against  him  on  the  same  theory  as  his  simple  promise 
to  pay  would  be  in  such  cases.  (Hill  v.  Van  Trees,  50  Cal. 
547 — 1875;  Wislozemus  v.  O'Fallon,  91  Mo.  184 — 1886; 
Bank  v.  Sneed,  97  Tenn.  120.) 

Presumption  of  consideration. — Section  57.  Although  a 
consideration  is  necessary  for  a  negotiable  instrument,  the 
plaintiff  in  an  action  on  a  bill  or  note  does  not  need  to 
prove  that  he  gave  one.  Absence  of  consideration  is  a 
"matter  of  defense"  which  the  defendant  must  prove  in 
order  to  defeat  the  action.  "Every  negotiable  instrument 
is  deemed  prima  facie  to  have  been  issued  for  a  valuable 
consideration,  and  every  person  whose  signature  appears 
thereon  to  have  become  a  party  thereto  for  value."  (Neg. 
Inst.  Law,  §  24.) 


CHAPTER  V 

ACCEPTANCE  OF   BILLS  OF  EXCHANGE 

Subject  of  assignment. — Section  58.  If  you  will  turn 
to  Form  2,  in  Chapter  I,  the  form  of  the  bill  of  exchange, 
you  will  notice  written  across  the  face  of  the  bill  the  words 
"Accepted,  Feb.  2,  1902.  James  McBride."  This  is  an 
acceptance.  This  chapter  will  deal  with  the  form  and 
kinds  of  acceptance  of  bills  of  exchange. 

Function  of  acceptance. — Section  59.  It  is  perfectly 
clear  that  the  mere  drawing  of  a  bill  by  the  drawer  and 
its  delivery  by  him  to  the  payee  for  value  puts  the  drawee 
under  no  obligation  to  the  payee  to  pay  the  amount  of  the 
bill.  For  example,  if  I  draw  on  you  for  $100,  you  will  not 
be  obliged  to  pay  my  bill.  You  owe  me  nothing.  Even  if 
you  did  owe  me  $100,  you  would  still  not  be  bound  to  pay 
the  bill  to  the  payee.  Your  debt  was  to  me  and  there  is 
no  way  in  which  I  can  compel  you  to  pay  a  third  person 
except  by  assigning  my  claim  to  the  third  person.  Is  the 
drawing  and  delivery  of  the  bill  to  the  payee  an  assignment 
of  my  claim  against  you  ?  A  bill  of  exchange  is  an  order  on 
the  drawee  to  pay.  An  assignment  is  in  theory  an  agency 
or  authority  to  collect.  A  bill  is,  then,  not  an  assignment 
and  in  consequence  the  payee  of  a  bill  of  exchange  has  no 
rights  against  the  drawee.  The  Statute  provides:  "A  bill 
of  itself  does  not  operate  as  an  assignment  of  the  funds  in 
the  hands  of  the  drawee  available  for  the  payment  thereof, 
and  the  drawee  is  not  liable  on  the  bill  unless  and  until  he 
accepts  the  same."  (Neg.  Inst.  Law,  §  126.) 

71 


72         THE  LAW  OF  COMMERCIAL  PAPER 

We  may  even  take  a  stronger  case  and  arrive  at  the  same 
result.  Suppose  the  drawee  had  contracted  with  the  drawer 
to  pay  all  bills  the  drawer  might  draw  upon  him.  Can  the 
payee  of  a  bill  drawn  in  pursuance  of  such  a  contract  en- 
force it  against  the  drawee?  Certainly  not.  The  bill  itself, 
as  we  have  just  seen,  gave  the  payee  no  rights  against  the 
drawee;  and  the  contract  between  the  drawer  and  drawee 
to  pay  is  not  available  to  the  payee  because  he  is  not  a 
party  to  it,  and  it  has  not  been  assigned  to  him.  The  only 
effect  of  the  refusal  of  the  drawee  to  pay  is  to  make  him 
liable  to  the  drawer  (not  on  the  bill)  in  damage  for  breach 
of  his  contract.  If  you  will  consider  this  case  for  a  moment 
you  will  see  that  it  is  the  common  case  between  bank  and 
depositor.  Upon  the  acceptance  of  an  ordinary  deposit  the 
bank  agrees  to  pay  all  checks  drawn  upon  it  by  the  deposi- 
tor up  to  the  amount  of  his  deposit.  But  neither  this  con- 
tract nor  the  check  itself  gives  the  payee  or  other  holder 
any  rights  against  the  bank.  The  Negotiable  Instruments 
Law  provides: 

"A  check  is  a  bill  of  exchange  drawn  on  a  bank,  payable 
on  demand.  Except  as  herein  otherwise  provided,  the  pro- 
visions of  this  Act  [which]  are  applicable  to  a  bill  of 
exchange  payable  on  demand  apply  to  a  check. 

"A  check  of  itself  does  not  operate  as  an  assignment  of 
any  part  of  the  funds  to  the  credit  of  the  drawer  with  the 
bank,  and  the  bank  is  not  liable  to  the  holder,  unless  and 
until  it  accepts  or  certifies  the  check."  (Neg.  Inst.  Law, 
§§  184,  188.) 

What,  then,  is  necessary  to  bind  the  drawee?  It  is  "the 
signification  by  the  drawee  of  his  assent  to  the  order  of  the 
drawer."  (Neg.  Inst.  Law,  §  131.)  Expressed  in  proper 
form,  such  an  expression  of  assent  is  an  acceptance.  An 


ACCEPTANCE  OF  BILLS  OF  EXCHANGE    73 

acceptance  binds  the  drawee  to  pay  the  bill  according  to  its 
terms. 

Form  of  acceptance.  —  Section  60.    "The  acceptance  must 
be  in  writing  and  signed  by  the  drawee/'    (Neg.  Inst.  Law, 


Proper  acceptance.  —  An  acceptance  usually  consists  of 
the  word  "accepted,"  the  date,  and  the  drawee's  name  writ- 
ten on  the  face  of  the  instrument  as  in  Form  2,  Chapter  I. 
But  any  words  written  on  the  face  or  back  of  the  instru- 
ment signifying  the  drawee's  assent  to  the  order  are  suf- 
ficient, provided  they  are  coupled  with  the  drawee's  signa- 
ture. For  example,  "Accepted,"  "Presented,"  "Seen," 
"Payable  at  X  bank,"  or  an  order  by  the  drawee  on  his 
agent  to  pay,  preceded  or  followed  by  the  drawee's  sig- 
nature, are  good  forms  of  acceptance.  It  is  also  held  that 
the  drawee's  signature  on  the  instrument  without  more  is  a 
sufficient  acceptance. 

In  Spear  v>  Pratt  (2  Hill,  N.  Y.  582),  the  court  said: 

"Any  words  written  by  the  drawee  on  a  bill,  not  putting 
a  direct  negative  upon  its  request,  as  'accepted/  'presented/ 
'seen/  the  day  of  the  month,  or  a  direction  to  a  third  per- 
son to  pay  it,  is  prima  facie  a  complete  acceptance,  by  the 
Law  Merchant.  (Bayley  on  Bills,  163,  Am.  ed.  of  1836,  and 
the  cases  cited  there.)  Writing  his  name  across  the  bill, 
as  in  this  case,  is  a  still  clearer  indication  of  intent,  and  a 
very  common  mode  of  acceptance.  This  is  treated  by  the 
Law  Merchant  as  a  written  acceptance  —  a  signing  by  the 
drawee.  'It  may  be/  says  Chitty,  'merely  by  writing  the 
name  at  the  bottom  or  across  the  bill';  and  he  mentions 
this  as  among  the  more  usual  modes  of  acceptance.  (Chitty 
on  Bills,  320,  Am.  ed.  of  1839.) 


74         THE  LAW  OF  COMMERCIAL  PAPER 

"It  is  supposed  that  the  rule  has  been  altered  by  I  R.  S. 
757  (2d  ed.)  §6.  This  requires  the  acceptance  to  be  in 
writing,  and  signed  by  the  acceptor  or  his  agent.  The 
acceptance  in  question  was,  as  we  have  seen,  declared  by 
the  Law  Merchant  to  be  both  a  writing  and  a  signing. 
The  Statute  contains  no  declaration  that  it  should  be  con- 
sidered less.  An  indorsement  must  be  in  writing  and 
signed;  yet  the  name  alone  is  constantly  holden  to  satisfy 
the  requisition.  No  particular  form  of  expression  is  neces- 
sary in  any  contract.  The  customary  import  of  a  word,  by 
reason  of  its  appearing  in  a  particular  place,  and  standing 
in  a  certain  relation,  is  considered  a  written  expression  of 
intent  quite  as  full  and  effectual  as  if  pains  had  been  taken 
to  throw  it  into  the  most  labored  periphrase.  It  is  said  the 
revisers,  in  their  note,  refer  to  the  French  law  as  the 
basis  of  the  legislation  which  they  recommend;  and  the 
French  law  requires  more  than  the  drawee's  name — the 
word  accepted,  at  least.  That  may  be  so ;  but  it  is  enough 
for  us  to  see  that  both  the  terms  and  the  spirit  of  the 
act  may  be  satisfied  short  of  that  word,  and  more  in  accord- 
ance with  the  settled  forms  of  commercial  instruments  in 
analogous  cases.  The  whole  purpose  was  probably  to 
obviate  the  inconveniences  of  the  old  law  which  gave  effect 
to  a  parol  acceptance." 

Extrinsic  written  acceptance. — The  acceptance,  to  be 
binding,  need  not  be  written  on  the  bill.  For  instance,  an 
acceptance  by  telegraph  is  sufficient  if  the  message  is  filed 
or  delivered  in  writing.  But  "where  an  acceptance  is  writ- 
ten on  a  paper  other  than  the  bill  itself,  it  does  not  bind 
the  acceptor  except  in  favor  of  a  person  who,  on  the  faith 
thereof,  receives  the  bill  for  value."  (Neg.  Inst.  Law, 
§  133.)  Thus  if  a  purchaser  of  a  bill  of  exchange  which 
had  been  accepted  by  telegraph  did  not  take  it  on  reliance 


ACCEPTANCE  OF  BILLS  OF  EXCHANGE      75 

upon  the  message,  he  would  have  no  action  against  the 
drawee. 

Virtual  acceptance. — Section  61.  The  drawee  may  make 
a  contract  with  the  drawer  that  he  will  accept  bills  to  be 
drawn  upon  him  in  the  future.  Such  a  contract  is  valid 
whether  oral  or  in  writing.  But  it  is  a  contract  which  gives 
the  payee  no  rights,  because  he  is  not  a  party  to  it.  The 
drawer  would  have  a  right  of  action  for  breach  of  the 
contract,  but  not  the  payee.  The  fact  that  the  payee  has  no 
rights  against  the  drawee,  even  where  he  took  the  bill 
knowing  of  the  drawee's  promise  to  accept,  led  to  the  recog- 
nition of  the  binding  effect  of  so-called  "virtual  accept- 
ances" of  bills  not  yet  drawn.  The  Statute  states  the  law 
in  this  way:  "An  unconditional  promise  in  writing  to  ac- 
cept a  bill  before  it  is  drawn  is  deemed  an  actual  accept- 
ance in  favor  of  every  person,  who,  upon  the  faith  thereof, 
receives  the  bill  for  value."  (Neg.  Inst.  Law,  §  134.) 

The  promise  to  operate  as  a  virtual  acceptance  must  be 
unconditional  and  in  writing;  and  no  holder  can  charge  the 
drawee  upon  his  unconditional  written  promise  unless  he 
paid  value  for  the  instrument  in  reliance  upon  it. 

Constructive  acceptance. — Section  62.  When  a  bill  is 
presented  to  a  drawee  for  acceptance,  "the  drawee  is 
allowed  twenty-four  hours  after  presentment  in  which  to 
decide  whether  or  not  he  will  accept  the  bill ;  but  the  accept- 
ance, if  given  dates  as  of  the  day  of  presentation."  (Neg. 
Inst.  Law,  §  135.)  The  holder  may  give  the  drawee  a 
longer  time  than  this  if  he  sees  fit.  During  the  period  thus 
allowed  the  drawee  to  determine  whether  or  not  he  will 
accept,  the  bill  may  be  in  the  hands  of  the  payee  or  in  the 
hands  of  the  drawee.  If  in  the  hands  of  the  payee  or  holder 
at  the  end  of  the  period  he  may  treat  it  as  dishonored  and 


;6         THE  LAW  OF  COMMERCIAL  PAPER 

proceed  accordingly.     (How  he  should  proceed  we  shall 
see  in  a  later  chapter.) 

If,  however,  the  bill  is  left  in  the  possession  of  the 
drawee  when  first  presented  for  acceptance,  the  drawee, 
instead  of  returning  it  accepted  or  not  accepted,  may  keep 
or  destroy  it.  His  retention  may  be  with  or  without  the 
holder's  consent.  If  he  keeps  it  with  the  consent  of  the 
holder,  no  legal  consequences  flow  from  the  retention,  even 
though  the  surrounding  circumstances  indicate  an  inten- 
tion to  accept.  No  matter  how  clear  the  intention  to  accept 
may  be,  it  will  not  be  an  acceptance  because  an  "acceptance 
must  be  in  writing  and  signed  by  the  drawee." 

But  suppose  the  drawee  retains  the  instrument  without 
the  consent  of  the  holder.  Here  the  holder  could  bring  an 
action  to  recover  damages  for  wrongful  detention  of  the 
instrument. 

Some  states  insert  the  following  in  the  uniform  law,  but 
it  is  not  found  in  the  original  draft  of  the  so-called  Uni- 
form Negotiable  Instruments  Law : 

"Where  a  drawee  to  whom  a  bill  is  delivered  for  accept- 
ance destroys  the  same,  or  refused  within  twenty-four  hours 
after  such  delivery,  or  within  such  other  period  as  the 
holder  may  allow,  to  return  the  bill  accepted  or  non-accepted 
to  the  holder,  he  will  be  deemed  to  have  accepted  the 


Kinds  of  acceptance. — Section  63.  "An  acceptance  is 
either  general  or  qualified.  A  general  acceptance  assents 
without  qualification  to  the  order  of  the  drawer.  A  quali- 
fied acceptance  in  express  terms  varies  the  effect  of  the 
bills  as  drawn."  (Neg.  Inst.  Law,  §  138.) 


ACCEPTANCE  OF  BILLS  OF  EXCHANGE      77 

"An  acceptance  is  qualified  which  is: 

"i.  Conditional;  that  is  to  say,  which  makes  payment  by 
the  acceptor  dependent  on  the  fulfillment  of  a  condition 
therein  stated. 

"2.  Partial ;  that  is  to  say,  an  acceptance  to  pay  part  only 
of  the  amount  for  which  the  bill  is  drawn. 

"3.  Local ;  that  is  to  say,  an  acceptance  to  pay  only  at  a 
particular  place. 

"4.  Qualified  as  to  time. 

"5.  The  acceptance  of  some  one  or  more  of  the  drawees, 
but  not  all."  (Neg.  Inst.  Law,  §  140.) 

Conditional  acceptance. — A  conditional  acceptance  is 
binding  upon  the  acceptor  subject  to  the  condition.  We 
have  seen  that  a  bill  does  not  bind  the  drawee  until  accepted, 
and  that  the  drawee  is  under  no  obligation  to  accept.  It 
is  easy  to  see,  then,  that  the  acceptor  can  attach  a  condi- 
tion to  his  acceptance  if  he  wishes  to.  For  example,  I 
draw  a  bill  on  you,  a  commission  merchant,  to  whom  I 
have  shipped  goods  to  be  sold  by  you.  You  may  accept  by 
a  promise  to  pay  when  the  goods  are  sold.  In  this  case 
you  will  be  bound  to  pay  the  bill  when  the  goods  are  sold, 
but  not  until  then. 

Partial  acceptance. — For  the  same  reason  that  a  drawee 
may  accept  a  bill  conditionally,  he  may  accept  it  for  part 
of  its  face  only.  An  old  case  affords  an  example  of  a 
partial  acceptance.  The  drawee  wrote  on  the  bill,  "I  do 
accept  this  bill  to  be  paid,  half  in  money  and  half  in  bills." 
It  was  conceded  that  the  promise  to  pay  half  in  bills 
would  not  be  an  acceptance  because  it  was  not  a  promise 
to  pay  money.  The  drawee  contended  that  he  was  not 
bound  even  as  to  the  other  half  because  a  partial  acceptance 
was  not  valid.  But  the  court  held  him  liable  as  to  the 
half  to  be  paid  in  money.  The  following  is  from  the  report 


78         THE  LAW  OF  COMMERCIAL  PAPER 

of  the  case :  "A  bill  was  drawn  upon  the  defendant,  who 
accepts  it  by  indorsement  in  this  manner :  'I  do  accept  this 
bill  to  be  paid,  half  in  money  and  half  in  bills!  And  the 
question  was,  whether  there  could  be  a  qualification  of  an 
acceptance;  for  it  was  alleged  that  his  writing  upon  the 
bill  was  sufficient  to  charge  him  with  the  whole  sum.  But 
'twas  proved  by  divers  merchants,  that  the  custom  among 
them  was  quite  otherwise,  and  that  there  might  be  a  quali- 
fication of  an  acceptance;  for  he  that  may  refuse  the  bill 
totally,  may  accept  it  in  part."  (Comberbach,  452.) 

Local  acceptance. — The  drawee  in  his  acceptance  may 
specify  a  place  of  payment  if  he  wishes,  thus :  "Accepted, 
payable  at  the  First  National  Bank,  Jas.  McBride."  Such 
an  acceptance  is  not  a  qualified  acceptance.  It  does  not 
vary  the  original  terms  of  the  bill.  Notwithstanding  the 
express  words  of  the  acceptance,  it  is  not  necessary  to 
present  the  bill  for  payment  at  the  place  specified,  i.  e., 
the  First  National  Bank.  So  far  as  the  acceptor  is  con- 
cerned his  liability  is  in  no  respect  different  from  the 
liability  imposed  if  he  had  not  named  a  place  of  payment 
in  his  acceptance.  If,  however,  he  had  written  on  the  bill 
"Accepted,  payable  at  the  First  National  Bank  only.  Jas. 
McBride,"  the  acceptance  would  have  been  that  kind  of  a 
qualified  acceptance  termed  by  the  statute  a  local  accept- 
ance. Under  such  an  acceptance  the  acceptor  would  not 
be  bound  to  pay  unless  the  bill  were  presented  for  payment 
at  the  First  National  Bank.  By  such  an  acceptance  the 
drawee  has  imposed  a  condition,  i.  e.,  presentment  at  a 
particular  place,  upon  his  liability  at  variance  from  the 
terms  of  the  bill  as  originally  drawn. 

Acceptance  qualified  as  to  time. — The  drawee  may 
qualify  his  acceptance  as  to  the  time  of  payment.  Thus,  if 
a  bill  is  drawn  payable  June  i,  1910,  the  drawee  may  accept 


ACCEPTANCE  OF  BILLS  OF  EXCHANGE    79 

it  payable  July  i,  1910.  An  example  of  such  an  accept- 
ance is  the  following:  "Accepted,  payable  July  I,  1910.  Jas. 
McBride."  Such  an  acceptance  is  binding  upon  the  acceptor, 
obligating  him  to  pay  on  July  I. 

Acceptance  by  some  but  not  by  all  drawees. — An  ac- 
ceptance of  a  bill  drawn  on  three  persons  by  one  or  two  of 
them  obviously  does  not  bind  the  drawees  who  do  not  join 
in  the  acceptance.  It  does,  however,  bind  those  who  do 
accept.  A  common  example  of  such  an  acceptance  is 
where  a  member  of  a  firm  accepts  a  bill  drawn  on  the 
firm  without  authority  to  do  so.  Such  an  acceptance  binds 
the  partner  who  signed  the  acceptance,  but  the  firm  is  not 
bound  because  the  signature  was  not  authorized. 

If  one  not  named  as  drawee  purports  to  accept  a  bill, 
the  acceptance  has  no  effect  as  such.  No  one  but  a  drawee 
named  in  the  instrument  can  accept  it. 

Payee  or  holder  need  not  take  a  qualified  acceptance. 

— Section  64.  We  have  seen  that  the  acceptor  may  suit 
himself  whether  he  accepts  or  not,  or  in  what  terms  he 
will  accept,  but  that  he  will  be  bound  in  accordance  with 
the  terms  of  his  acceptance.  The  holder  of  the  instru- 
ment also  has  certain  rights.  He  may  take  the  qualified 
acceptance  if  he  sees  fit,  or  he  can  insist  upon  a  general 
acceptance  written  on  the  bill  itself.  If  this  is  refused, 
^and  some  other  form  offered  in  its  stead,  he  may  treat  it 
'as  an  absolute  refusal  to  accept  and  treat  the  bill  as  dis- 
honored. 

"The  holder  of  a  bill  presenting  the  same  for  acceptance 
may  require  that  the  acceptance  be  written  on  the  bill,  and 
if  such  request  is  refused  may  treat  the  bill  as  dishonored." 
(Neg.  Inst.  Law,  §  132.) 


8o         THE  LAW  OF  COMMERCIAL  PAPER 

"The  holder  may  refuse  to  take  a  qualified  acceptance, 
and  if  he  does  not  obtain  an  unqualified  acceptance,  he  may 
treat  the  bill  as  dishonored  by  non-acceptance.  .  .  ." 

Effect  of  taking  qualified  acceptance  on  the  liability 
of  drawer  and  indorsers. — Section  65.  "Where  a  qualified 
acceptance  is  taken,  the  drawer  and  indorsers  are  dis- 
charged from  liability  on  the  bill,  unless  they  have  expressly 
or  impliedly  authorized  the  holder  to  take  a  qualified  ac- 
ceptance, or  subsequently  assent  thereto."  (Neg.  Inst. 
Law,  §  141.)  For  example,  if  X  draws  a  bill  on  Y,  payable 
to  Z,  who  indorses  and  transfers  the  bill  to  M,  and  M 
takes  a  qualified  acceptance  from  Y  without  the  assent  of 
X  and  Z,  they  are  discharged  and  M  must  look  to  Y  alone 
for  payment.  But  "when  the  drawer  or  indorser  receives 
notice  of  a  qualified  acceptance,  he  must  within  a  reasonable 
time  express  his  dissent  to  the  holder,  or  he  will  be  deemed 
to  have  assented  thereto."  (Neg.  Inst.  Law,  §  141.) 

NEGOTIATION 

Transfer  by  operation  of  law. — Section  66.  The  dis- 
tinguishing characteristic  of  commercial  paper,  or  nego- 
tiable bills  and  notes,  is  that  they  represent  obligations  to 
pay  money,  which  are  transferable.  Unlike  Common  Law 
debts  and  obligations,  they  may  be  transferred  from  one 
owner  to  another.  The  transfer  of  the  instrument  may  be 
(i)  by  operation  of  law,  or  (2)  by  the  act  of  the  parties. 

A  bill  or  note  is  transferred  by  operation  of  law  in  the 
following  cases :  ( I )  At  the  death  of  the  holder  when  the 
instrument  becomes  the  property  of  the  deceased  holder's 
executor  or  administrator;  (2)  Upon  the  bankruptcy  of  the 
holder,  when  it  becomes  the  property  of  his  trustee  in 
bankruptcy. 


NEGOTIATION  81 

Transfer  by  act  of  parties ;  negotiation. — Section  67.  By 
the  transfer  of  commercial  paper  by  the  "act  of  the  parties" 
we  mean  the  transfer  of  it  from  one  owner  to  another  as 
the  same  takes  place  in  the  ordinary  course  of  business. 
Such  a  transfer  is  a  "negotiation."  The  appropriate  mode 
of  transferring  a  bill  or  note  depends  upon  whether  it  is 
payable  to  order  or  to  bearer.  "If  payable  to  bearer,  it  is 
negotiated  by  delivery;  if  payable  to  order,  it  is  negotiated 
by  the  indorsement  of  the  holder,  completed  by  delivery." 
(Neg.  Inst.  Law,  §30.) 

Transfer  by  delivery. — Section  68.  We  have  already  seen 
(Chapter  III,  Section  36)  what  instruments  are  payable  to 
bearer.  Delivery  is  all  that  is  necessary  to  pass  the  owner- 
ship from  one  to  another.  Delivery  is  the  transfer  of  the 
possession  of  the  paper  from  one  to  another. 

Delivery  may  be  intended  as  a  gift  or  as  a  sale  to  the 
transferee.  It  may  be  for  a  particular  purpose,  as^for 
collection.  The  object  of  the  transfer  is  immaterial;  a 
transfer  of  the  possession  of  the  paper  will  pass  the  owner- 
ship of  the  instrument  to  the  transferee.  He  is  enabled  to 
bring  an  action  upon  the  instrument  and  collect  the  pro- 
ceeds. If  the  transfer  was  a  gift  or  sale  he  will  keep  the 
proceeds;  if  it  was  simply  for  collection  he  will  hold  the 
funds  in  trust  for  the  benefit  of  the  party  who  transferred 
it  to  him. 

The  fact  that  the  purpose  of  the  delivery  does  change 
the  effect  of  the  delivery  of  a  bearer  instrument  is  illus- 
trated by  two  cases.  In  the  first  Mrs.  Remsen  was  the 
holder  of  a  note  payable  to  bearer  made  by  defendant. 
Mrs.  Remsen  was  indebted  to  the  defendant  and  had  she 
attempted  to  sue  him  on  the  note  he  might  have  set  off  the 
amount  she  owed  him  against  the  amount  due  on  the  note. 


82         THE  LAW  OF  COMMERCIAL  PAPER 

But  she  delivered  the  note  to  her  agent,  the  plaintiff,  for 
the  purpose  of  having  the  action  brought  by  him.  It  was 
held  that  the  plaintiff  had  become  the  owner  of  the  note  by 
the  delivery  and  could  maintain  an  action  upon  it ;  and  the 
defendant  was  not  allowed  to  set  off  his  debt  because  it 
was  not  due  from  the  plaintiff  who  was  now  the  owner. 
Of  course,  when  the  plaintiff,  Mrs.  Remsen's  agent,  re- 
ceived the  money  from  the  defendant,  he  would  have  to 
hand  it  over  to  his  principal,  Mrs.  Remsen.  In  the  second 
case  the  Rev.  Dr.  Walker  was  the  holder  of  a  bill  payable 
to  bearer.  Wishing  to  obtain  the  money  due  on  the  bill 
but  unwilling  that  his  name  should  appear  as  plaintiff  in  an 
action  at  law,  he  requested  the  plaintiff  to  bring  an  action 
on  the  bill  for  him.  But  the  bill  was  not  actually  delivered 
to  the  plaintiff.  It  was  held  that  the  plaintiff  was  not  the 
owner  of  the  instrument  and  was  not  entitled  to  sue  upon 
it. 

Transfer  by  indorsement.    Form   of   indorsement. — 

Section  69.  The  form  employed  to  transfer  a  bill  or  note 
payable  to  order  is  indorsement.  A  valid  indorsement  must 
comply  with  each  of  the  following  requirements:  (i)  It 
must  be  written  on  the  instrument;  (2)  it  must  be  an  order 
to  pay  the  transferee;  (3)  it  must  order  the  payment  to  the 
transferee  of  the  whole  sum  due  on  the  instrument;  and 
(4)  the  instrument  with  the  indorsement  upon  it  must  be 
"delivered"  to  the  transferee. 

Must  be  written  on  instrument. — We  have  said  that  the 
first  requisite  of  an  indorsement  was  that  it  must  be  in 
writing  on  the  instrument.  Suppose  I  hand  you  a  note 
payable  to  me  or  order  and  I  orally  order  the  maker  to  pay 
you.  You  would  get  no  title  to  the  note.  The  same  thing 
would  be  true  if  I  wrote  the  maker  a  letter  in  which  I 
ordered  him  to  pay  you  the  amount  of  the  note  at  maturity. 


NEGOTIATION  83 

But  if  I  write  on  a  piece  of  paper,  "Pay  to  the  order  of 
J.  Orr,"  signing  my  name  to  the  order,  and  attach  the  slip 
to  the  note,  it  will  be  good  as  an  indorsement.  This  is  an 
exception  to  the  general  rule  and  custom  requiring  the 
indorsement  to  be  written  on  the  instrument  itself.  Such 
a  piece  of  paper  attached  to  a  bill  or  note  for  the  purpose 
of  bearing  indorsement  is  called  an  allonge. 

It  does  not  affect  the  validity  of  the  indorsement  if  it  is 
written  on  the  face  of  the  instrument,  notwithstanding  the 
meaning  of  the  word  "indorse"  and  the  almost  universal 
usage  of  writing  the  order  on  the  back. 

The  Statute  provides :  "The  indorsement  must  be  writ- 
ten on  the  instrument  itself  or  upon  a  paper  attached 
thereto."  (Neg.  Inst.  Law,  §  31.) 

"Where  a  signature  is  so  placed  upon  the  instrument 
that  it  is  not  clear  in  what  capacity  the  person  making  the 
same  intended  to  sign,  he  is  deemed  an  indorser."  (§17 
[6].) 

Must  be  an  order  to  pay. — Anything  less  than  an  order, 
i.  e.,  an  imperative  direction,  is  not  an  indorsement.  Thus, 
the  delivery  of  a  note  payable  to  order  with  the  following 
guaranty  of  payment  written  thereon  was  held  not  to  trans- 
fer the  note : 

For  value  received,  we  hereby  guarantee  the  payment  of  the 
within  note  at  maturity,  or  at  any  time  thereafter,  with  interest 
at  ten  per  cent  per  annum  until  paid,  and  agree  to  pay  all 
costs  and  expenses  paid  or  incurred  in  collecting  the  same. 

B.  F.  ALLEN,  Pres't. 

You  will  note  that  the  writing  contains  no  order  to  pay 


84         THE  LAW  OF  COMMERCIAL  PAPER 

anyone.  For  the  same  reason  the  following  are  not  indorse- 
ments: "I  assign  the  within  note"  or  "I  assign  all  my 
right,  title,  and  interest  in  and  to  the  within  note."  An 
assignment  is  an  authority  to  the  assignee  to  collect;  an 
order  is  a  direction  to  the  maker  to  pay.  This  distinction, 
however,  has  been  overlooked  by  many  courts  in  recent 
decisions  and  both  guaranties  and  assignments  written  on 
negotiable  instruments  have  been  held  to  transfer  them  as 
indorsements. 

Must  be  an  order  to  pay  whole  sum  due  on  instrument. 
— Section  70.  An  indorsement  must  be  an  order  to  pay 
the  whole  sum  due  on  the  instrument.  Thus,  if  the  payee 
of  a  note  for  $100  "indorsed"  it,  "Pay  $50  to  X,"  such  a 
writing  would  give  X  no  rights  on  the  note.  And  even  if 
the  payee  should  subsequently  write  under  his  previous 
"indorsement"  a  second,  "Pay  the  rest  of  the  sum  due  on 
this  note  to  X,"  X  would  still  have  acquired  no  rights  on 
the  instrument.  Neither  writing  by  itself  is  sufficient  and 
two  bad  indorsements  do  not  make  one  good  one.  It  fol- 
lows that  the  holder  cannot  indorse  the  instrument  so  as 
to  make  part  payable  to  one  and  part  to  another.  Such  an 
indorsement  would  not  pass  title  to  either,  even  if  the  parts 
all  taken  together  amounted  to  the  whole  sum.  It  is  possible, 
however,  if  part  of  the  bill  or  note  has  been  paid,  to  indorse 
the  instrument  so  that  the  balance  due  will  be  payable  to 
the  indorsee.  Such  an  indorsement  orders  the  payment 
of  the  whole  sum  due  on  the  instrument  at  the  time  of  the 
indorsement. 

The  statute  provides:  "The  indorsement  must  be  an  in- 
dorsement of  the  entire  instrument.  An  indorsement  which 
purports  to  transfer  to  the  indorsee  a  part  only  of  the 
amount  payable,  or  which  purports  to  transfer  the  instru- 
ment to  two  or  more  indorsees  severally,  does  not  operate 


NEGOTIATION  85 

as  a  negotiation  of  the  instrument.  But  where  the  instru- 
ment has  been  paid  in  part,  it  may  be  indorsed  as  to  the 
residue."  (Neg.  Inst.  Law,  §32.) 

An  indorsement  may  be  made  to  two  persons  jointly,  as 
"Pay  to  M  and  N  jointly;"  such  an  indorsement  would 
riot  be  a  partial  indorsement  as  the  whole  sum  is  payable  to 
the  group  M  and  N.  An  indorsement  "Pay  to  M  and  N" 
seems  to  be  good  under  the  section  of  the  Statute  authoriz- 
ing an  instrument  to  be  made  payable  to  "one  or  more  of 
several"  persons.  (Neg.  Inst.  Law,  §8  [5].) 

Must  be  delivered. — Just  as  a  promissory  note  does  not 
take  effect  until  delivered,  so  an  indorsement  is  not  effectual 
to  transfer  the  instrument  until  there  is  a  delivery.  Thus,  if 
I  have  a  note  payable  to  me  and  write  upon  it  "Pay  to  M" 
and  sign  my  name  and  put  it  back  in  the  drawer  of  my 
desk,  the  transfer  is  not  complete.  But  as  in  the  case  of 
the  inception  of  a  note,  if  the  note  duly  indorsed  is  stolen 
from  my  desk,  the  indorsement  is  complete  and  effective  to 
transfer  the  instrument,  although  of  course  the  thief  him- 
self could  not  recover  on  the  instrument. 

Kinds  of  indorsement:  blank  and  special. — Section  71. 
"An  indorsement  may  be  either  in  blank  or  special;  and 
it  may  also  be  either  restrictive  or  qualified,  or  conditional." 
(Neg.  Inst.  Law,  §33.) 

"A  special  indorsement  specifies  the  person  to  whom  or 
to  whose  order  the  instrument  is  to  be  payable;  and  the 
indorsement  of  such  indorsee  is  necessary  to  the  further 
negotiation  of  the  instrument."  (§34.)  "Pay  to  X  (Sgd.) 
A,"  "Pay  to  X  or  order  (Sgd.)  A,"  and  "Pay  to  the  order 
of  X  (Sgd.)  A,"  are  examples  of  special  indorsements. 
Just  as  a  note  payable  to  A  cannot  be  transferred  without 
the  indorsement  of  A,  so  an  instrument  indorsed  by  the 


86         THE  LAW  OF  COMMERCIAL  PAPER 

-j*»/ 

payee  A  to  X  cannot  be  transferred  by  X  without'  his  in- 
dorsement. One  should  be  careful  in  taking  a  note  or 
check  payable  to  order  to  see  that  it  is  properly  indorsed. 

A  blank  indorsement  consists  of  the  indorsees  signature 
without  more.  The  Statute  says:  "The  signature  of  the 
indorser,  without  additional  words,  is  a  sufficient  indorse- 
ment." "An  indorsement  in  blank  specifies  no  indorsee, 
and  an  instrument  so  indorsed  is  payable  to  bearer,  and 
may  be  negotiated  by  delivery."  "The  holder  may  convert 
a  blank  indorsement  into  a  special  indorsement.  .  .  ."  (Neg. 
Inst.  Law,  §§  31,  34,  35.) 

Blank  indorsements  followed  by  special  indorsements. 
— Section  72.  The  holder  of  a  bill  or  note  which  has  been 
indorsed  in  blank  and  delivered  to  him  may  specially 
indorse  it  himself  and  transfer  the  instrument  without  com- 
pleting the  blank  indorsement.  In  a  case  like  this  the 
instrument  cannot  again  be  transferred  without  the  in- 
dorsement of  the  last  indorsee.  On  the  other  hand,  if  one 
who  holds  an  instrument  indorsed  specially  transfers  it  by 
an  indorsement  in  blank,  the  note  or  bill  becomes  trans- 
ferable by  delivery  and  in  effect  payable  to  bearer.  For 
example,  if  John  Jones,  the  payee  of  a  note,  transfers  it 
by  the  blank  indorsement,  "J.  Jones,"  so  long  as  the  in- 
dorsement remains  in  this  form  no  further  indorsement  is 
necessary  to  a  transfer  of  the  note.  But  if  Wm.  Roe,  to 
whom  Jones  delivered  the  note,  transferred  it  by  the  special 
indorsement,  "Pay  to  the  order  of  John  Doe  (Sgd.),  Wm. 
Roe,"  the  indorsement  of  John  Doe  is  necessary  to  a  further 
transfer.  But  if  John  Doe  indorsed  in  blank  "John  Doe," 
the  instrument  could  again  be  transferred  by  delivery.  The 
Statute  states  this  rule  in  these  words,  "An  instrument  is 
payable  to  bearer  .  .  .  when  the  only  or  last  indorsement 
is  an  indorsement  in  blank." 


NEGOTIATION  87 

An  instrument  payable  to  bearer  on  its  face  may  be 
specially  indorsed  by  the  holder.  Does  such  a  note  cease 
to  be  transferable  by  delivery  and  require  the  indorsement 
of  the  special  indorsee  for  its  transfer?  Is  it  like  the  case 
of  an  instrument  payable  to  order  which  has  been  indorsed 
in  blank  and  then  specially  indorsed?  No.  Its  character 
as  bearer  instrument  remains  and  it  is  still  transferable  by 
delivery  without  indorsement.  But  the  liability  of  the 
special  indorser  exists  only  in  favor  of  such  holders  as  are 
the  indorsees  of  his  indorsee.  For  example,  A,  the  holdei; 
of  X's  note,  payable  to  bearer,  transfers  it  to  B  by  the 
special  indorsement  "Pay  to  B  (Sgd.)  A."  B  delivers  the 
note  to  C  without  indorsing  it.  C,  by  delivery  to  him, 
becomes  the  owner  of  the  note  because  it  was  payable  to 
bearer,  but  he  gets  no  rights  against  A  as  indorser.  If  B 
had  indorsed  the  note  to  C,  C  might  have  looked  for  pay- 
ment, not  only  to  the  maker  X,  but  also  to  B  as  indorser. 

The  Statute  provides: 

"Section  40.  Where  an  instrument  originally  payable  to 
or  indorsed  specifically  to  bearer  is  subsequently  indorsed 
specially,  it  may  nevertheless  be  further  negotiated  by 
delivery;  but  the  person  indorsing  specially  is  liable  as 
indorser  to  only  such  holders  as  make  title  through  his 
indorsement" 


CHAPTER  VI 
NEGOTIATION   (Continued) 

Qualified  indorsements. — Section  73.  An  indorsement 
may  be  either  in  blank  or  special ;  and  it  may  also  be  either 
restrictive  or  qualified,  or  conditional.  (Neg.  Inst.  Law, 
§33.)  The  forms  given  below  show  the  various  kinds  of 
indorsements.  We  have  already  dealt  with  special  and 
blank  indorsements.  (Sections  71  and  72,  Chapter  V.) 

(i.  Indorsement  in  full)      -,*^* 
Pay  to  George  F.  Wheaton  or  order. 
Wm.  R.  Carpenter. 

(2.  Indorsement  in  blank)  v> 
George  F.  Wheaton. 

(3.  Qualified  Indorsement) 
Without  recourse. 

Fred  S.  Nichols. 

(4.  Conditional  Indorsement) 

Pay  Geo.  W.  Terry  or  order  on  the  completion  of  the 
Pine  Creek  Road. 

R.  Van  Scoter. 

(5.  Restrictive  Indorsement) 

Pay  Harvey  Prentiss,  or  order  for  collection  for  my 
account. 

George  W.  Terry. 

88 


NEGOTIATION  89 

Either  a  blank  indorsement  or  a  special  indorsement  may 
be  qualified.  The  first  example  above  is  a  qualified  blank 
indorsement  because  it  specifies  no  indorsee.  If  the  words 
"Without  recourse"  had  been  written  by  Carpenter  above 
his  special  indorsement  to  George  F.  Wheaton,  you  would 
have  an  example  of  a  qualified  special  indorsement. 

What  is  the  purpose  and  effect  of  qualifying  an  indorse- 
ment? A  simple  blank  or  special  indorsement  not  only 
transfers  the  instrument  to  the  indorsee,  but  subjects  him 
to  an  obligation  to  the  indorsee  and  all  subsequent  holders 
to  pay  the  instrument  if  the  maker  or  acceptor  does  not. 
In  other  words  the  indorsement  is  a  special  kind  of  guar- 
anty that  the  instrument  will  be  paid.  It  may  often  happen 
that  the  holder  of  a  note  wishes  to  sell  it  or  give  it  away 
without  assuming  this  liability.  A  qualified  indorsement 
affords  the  holder  an  appropriate  method  to  accomplish  his 
purpose.  "A  qualified  indorsement  constitutes  the  indorser 
a  mere  assignor  of  the  title  to  the  instrument"  (Neg.  Inst. 
Law,  §  38),  and  does  not  subject  him  to  the  regular  liabil- 
ity of  the  ordinary  indorser  to  pay  if  the  maker  does  not. 

An  indorsement  may  be  qualified  by  writing  the  words 
"Without  recourse,"  or  "Without  recourse  to  me,"  which  is 
the  complete  expression,  or  "Not  to  be  liable  as  indorser," 
or  "Without  liability,"  or  the  phrase  which  used  to  be 
common  "not  holden."  "Without  recourse"  are  the  words 
most  usual  today,  but  in  the  words  of  the  Statute  (§  38) 
"any  words  of  similar  import"  are  sufficient. 

A  qualified  indorsement  transfers  a  bill  or  note  just  as 
effectually  as  an  unqualified  one,  and  the  rights  of  the 
holder  under  a  qualified  indorsement  against  the  maker  or 
acceptor  and  indorsers,  other  than  the  qualified  indorser, 


90         THE  LAW  OF  COMMERCIAL  PAPER 

are  the  same  as  if  the  indorsement  were  a  simple  blank  or 
special  indorsement. 

It  has  been  thought  that  the  fact  that  the  holder  of  a 
note  is  unwilling  by  his  indorsement  to  assume  the  liability 
of  an  indorser  ought  to  put  a  purchaser  from  him  on  his 
guard  as  to  possible  defenses  of  the  maker  and  prevent  the 
purchaser  from  becoming  a  bona  fide  holder.  Such,  how- 
ever, is  not  the  law.  A  holder  under  a  qualified  indorse- 
ment may  be  a  bona  fide  holder  just  as  well  as  if  he  held 
under  an  unqualified  one.  This  is  illustrated  by  the  case 
of  Epler  v.  Funk  (8  Barr.  468)  : 

Rogers,  J.  This  is  an  action  by  an  indorser  against  the 
maker  to  recover  $100,  payable  to  the  order  of  Henry 
Hamer,  twelve  months  after  date.  It  is  indorsed  to  J.  M. 
Funk,  without  recourse.  The  defense  is  that  the  con- 
sideration of  the  note  was  for  the  right  of  vending  Hoover's 
patent  corn-stalk  cutting  machine  in  Dauphin  County ;  that 
the  machine  was  entirely  worthless,  and  that  defendant 
was  induced  to  enter  into  the  contract  by  combination,  con- 
trivance, and  fraud. 

The  defendant  contends  that,  under  the  circumstances 
exhibited  on  the  face  of  the  note,  on  the  special  indorse- 
ment and  the  facts  given  in  evidence,  he  is  entitled  to 
make  the  same  defense  against  the  indorser  as  between  the 
original  parties  to  the  note.  The  note  is  indorsed  by  the 
payee  to  the  order  of  J.  M.  Funk,  the  plaintiff,  "without 
recourse."  This,  it  is  said,  is  not  in  the  usual  course  of 
business;  that  it  was  sufficient  to  put  the  indorser  on  his 
guard,  and  to  lead  him  to  suspect  there  was  something 
wrong  in  the  transaction,  as  between  maker  and  payee. 
But  although  most  usually  notes  go  forth  indorsed  in 
blank,  yet  I  cannot  agree  that  such  an  indorsement  affects 


NEGOTIATION  91 

the  negotiable  quality  of  the  paper.  It  shows  only  an 
unwillingness  to  be  answerable  for  the  solvency  of  the 
maker — a  prudent  precaution,  particularly  where,  as  here, 
the  note  has  a  long  time  to  run  before  it  matures.  And 
this  is  the  view  taken  of  this  fact  in  Rice  v.  Stearns.  In 
that  case,  a  promissory  note  was  indorsed  specially  thus : 
"For  value  received,  I  order  the  contents  of  the  note  to 
be  paid  to  A.  B.,  at  his  own  risk."  Two  points  were  ruled : 
ist,  That  in  an  action  on  such  a  note,  by  the  indorser 
against  the  maker,  the  promisee  is  a  witness  to  prove  the 
execution  of  the  note;  2d,  Which  I  take  it  is  the  case 
here,  such  special  indorsement  transfers  the  property  of 
the  note,  with  its  negotiable  quality,  to  the  indorse^ 

Conditional  indorsements. — Section  74.  The  fourth  in- 
dorsement given  at  the  opening  of  the  chapter  is  a  con- 
ditional indorsement.  It  is  an  order  by  Van  Scoter  on  the 
maker  to  pay  Geo.  W.  Terry  upon  condition  that  the 
Pine  Creek  Road  is  completed,  viz.,  if  and  when  the  Pine 
Creek  Road  is  finished.  Under  the  express  terms  of  such 
an  indorsement  Terry  is  entitled  to  nothing  until  the  road 
is  completed.  It  follows  that  if  Terry's  rights  are  con- 
ditional the  rights  of  all  those  who  take  the  note  from  him 
are  likewise  conditional.  It  also  follows  that  if  the  road 
is  not  completed,  Van  Scoter,  the  indorser,  is  entitled  to 
the  money  due  upon  the  instrument.  In  consequence,  if 
the  road  has  not  been  completed,  the  maker  must  not  pay 
to  Terry  or  anyone  who  took  the  note  from  him,  but 
must  pay  to  Van  Scoter.  Further  the  maker  must  de- 
termine at  his  peril  whether  the  condition  has  been  fulfilled, 
and  if  he  pays  Terry  before  the  road  is  done,  he  may  be 
compelled  to  pay  the  note  a  second  time  to  Van  Scoter. 
Thus,  in  Robertson  v.  Kensington  (4  Taunton  30),  it  ap- 
peared that  R.  Robertson  was  the  payee  of  a  bill  accepted 


92         THE  LAW  OF  COMMERCIAL  PAPER 

by   Kensington   &    Co.,    bankers,   which    he   indorsed    as 
follows : 

Pay  the  within  sum  to  Messrs.  Clerk  &  Ross,  or  order,  upon 
my  name  appearing  in  the  'Gazette'  as  ensign  in  any  regiment  of 
the  line,  between  the  ist  and  64th,  if  within  two  months  from 
this  date. 

R.  ROBERTSON. 

The  bill  was  indorsed  in  blank  by  Clerk  &  Ross  and 
ultimately  was  transferred  to  the.  Bank  of  England,  to 
which  it  was  paid  by  the  acceptors  at  maturity.  The  con- 
dition of  the  indorsement,  however,  had  not  been  fulfilled ; 
Robertson's  name  had  not  appeared  in  the  "Gazette."  Rob- 
ertson thereupon  sued  the  acceptors  and  they  were  com- 
pelled to  pay  the  bill  a  second  time. 

The  Statute  has  changed  the  law  as  stated  above  and 
applied  in  Robertson  v.  Kensington,  as  follows :  "Where  an 
indorsement  is  conditional,  a  party  required  to  pay  the 
instrument  may  disregard  the  condition,  and  make  payment 
to  the  indorsee  or  his  transferee,  whether  the  condition  has 
been  fulfilled  or  not."  (Neg.  Inst.  Law,  §  39.) 

But  the  Statute  does  not  make  the  condition  in  the  in- 
dorsement of  no  effect.  Although  the  maker  or  acceptor 
may  disregard  the  condition,  the  conditional  indorsee  is 
bound  by  it.  Thus,  if  he  has  received  the  money  due 
on  the  instrument  before  the  happening  of  the  condition 
which  entitled  him  to  it,  he  is  bound  to  hold  the  money  for, 
and  pay  it  to,  the  indorser.  For  example,  if  Terry  received 
the  money  from  the  maker  before  the  road  was  completed, 
he  would  be  obliged  to  account  to  Van  Scoter  for  the  sum 
he  had  received.  The  Statute  says :  "But  any  person  to 
whom  an  instrument  so  indorsed  is  negotiated,  will  hold 


NEGOTIATION  93 

the  same,  or  the  proceeds  thereof,  subject  to  the  rights  of 
the  person  indorsing  conditionally."  (Neg.  Inst.  Law, 
§390 

Restrictive  indorsements. — Section  75.  According  to  the 
Statute  there  are  three  kinds  of  restrictive  indorsements. 

"An  indorsement  is  restrictive  which  either: 

"i.  Prohibits  the  further  negotiation  of  the  instrument ;  or 
"2.  Constitutes  the  indorsee  the  agent  of  the  indorser ;  or 
"3.  Vests  the  title  in  the  indorsee  in  trust  for  or  to  the 
use  of  some  other  person."     (Neg.  Inst.  Law,  §36.) 

An  example  of  the  first  kind,  one  prohibiting  the  further 
negotiation  of  the  instrument,  is,  "Pay  to  H.  Prentiss  only 
(Sgd.)  G.  W.  Terry."  Such  an  indorsement  gives  Prentiss 
all  of  the  rights  of  an  ordinary  indorsee  except  that  of 
further  negotiating  the  instrument.  He  is  entitled  to  the 
money  due  upon  the  instrument,  and  may  sue  the  maker 
or  any  of  the  indorser s,  including  his  indorser,  Terry,  in 
case  it  is  not  paid.  It  should  be  noted  that  a  special  indorse- 
ment which  does  contain  the  words  "or  order,"  for  example, 
"Pay  H.  Prentiss.  (Sgd.)  G.  W.  Terry,"  is  not  restrictive. 
"An  instrument  negotiable  in  its  origin  continues  to  be 
negotiable  until  it  has  been  restrictively  indorsed."  (Neg. 
Inst.  Law,  §  47.)  "But  the  mere  absence  of  words  implying 
power  to  negotiate  does  not  make  an  indorsement  restric- 
tive." (Neg.  Inst.  Law,  §  36.) 

One  of  the  forms  of  indorsement  most  frequently  en- 
countered in  business  is  the  second  kind  of  restrictive 
indorsement  enumerated  in  the  Statute:  one  constituting 
the  indorsee  the  agent  or  trustee  of  the  indorser.  The 
last  indorsement  at  the  head  of  this  chapter  is  an  example. 
Other  examples  are:  "Pay  to  H.  Prentiss  for  my  use. 


94         THE  LAW  OF  COMMERCIAL  PAPER 

(Sgd.)  G.  W.  Terry";  "Pay  to  First  National  Bk.  for  col- 
lection. ( Sgd. )  G.  W.  Terry."  Such  an  indorsement  makes 
the  indorsee  the  holder  of  the  instrument ;  but  by  the  very 
terms  of  the  indorsement  he  holds  the  instrument  and  its 
proceeds  when  collected  in  trust  for  the  benefit  of  the 
indorser.  Since  the  fact  that  Prentiss  or  the  First  National 
Bank  is  not  the  beneficial  owner,  but  is  a  trustee  or^ageRt, 
for  Terry,  appears  on  the  paper  itself,  no  purchaser  can 
claim  to  be  a  bona  fide  holder.  Anyone  buying  after  such 
an  indorsement  must  hold  the  instrument  or  its  proceeds, 
just  as  did  the  restrictive  indorsee,  in  trust  for  the  restric- 
tive indorser,  Terry.  This  does  not  mean,  however,  that  a 
restrictive  indorsee  may  not  negotiate  the  instrument,  but 
simply  that  anyone  to  whom  he  transfers  it  holds  it 
subject  to  the  rights  of  the  restrictive  indorser.  In  fact, 
such  indorsements  are  most  frequently  used  when  indors- 
ing a  bill  of  exchange  or  check  payable  in  a  distant  place 
to  the  home  bank  for  the  purpose  of  having  it  forwarded 
to  another  bank  at  the  place  of  payment  for  collection. 

There  is  one  other  peculiarity  which  distinguishes  the 
position  of  this  kind  of  restrictive  indorsee  from  that  of 
the  ordinary  indorsee :  he  may  not  sue  this  indorser  in 
case  the  maker  does  not  pay.  The  reason  for  this  is  obvious. 
If  the  restrictive  indorsee  could  sue  his  indorser,  he  would 
hold  the  money  recovered  in  trust  for  the  indorser  who 
could  in  turn  recover  it  back. 


A 


The  Statute  states  the  rights  of  such  a  restrictive  indorsee 
as  follows: 

"i.  To  receive  payment  of  the  instrument; 
"2.  To  bring  any  action  thereon  that  the  indorser  could 
bring; 

"3.  To  transfer  his  rights  as  such  indorser." 

(Neg.  Inst.  Law,  §  37-) 


NEGOTIATION  95 

"Pay  to  the  order  of  Mary  Hook  in  trust  for  her  son, 
Charles  Hook.  (Sgd.)  J.  P.  Haskins,"  is  an  example  of  the 
third  variety  of  restrictive  indorsements.  The  indorsee 
under  such  an  indorsement  stands  in  the  same  position  as 
an  ordinary  indorsee  except  that  he  holds  the  note  or  its 
proceeds  if  sold  or  collected  for  the  benefit  of  the  beneficiary 
named.  He  may  sue  any  of  the  parties  to  the  instrument 
including  the  restrictive  indorser.  In  this  respect  his  rights 
differ  from  those  of  an  indorser  under  the  second  kind  of 
restrictive  indorsement.  But,  as  in  that  kind  of  indorse- 
ment, the  form  of  the  indorsement  is  notice  to  everyone 
dealing  with  the  instrument  of  the  right  of  the  beneficiary. 
Such  an  indorsement,  though  it  does  not  prevent  the  nego- 
tiating of  the  instrument  by  Mrs.  Hook,  the  indorsee  in 
the  example  given  above,  for  practical  purposes  deprives 
the  note  of  commercial  value,  for  any  purchaser  would  be 
responsible  to  Charles  Hook  in  case,  his  mother  transferred 
the  instrument  in  breach  of  trust. 

Delivery  without  indorsement. — Section  76.  If  an  in- 
strument payable  to  order,  or  specially  indorsed,  is  delivered 
by  the  holder  without  indorsement,  the  transferee  does  not 
become  the  owner  or  holder  of  the  note.  A  bill  or  note 
payable  to  order  can  be  transferred  only  by  indorsement. 
What  rights,  if  any,  such  a  transferee  obtains,  depend  upon 
the  intention  accompanying  the  delivery.  If  the  holder  did 
not  intend  to  deliver  the  instrument  at  all,  as  in  the  case 
where  it  is  stolen  from  him,  the  thief  obtains  no  rights 
whatever.  If  the  holder  intended  to  deliver  the  instru- 
ment, but  simply  for  the  purpose  of  safekeeping,  no  rights 
in  the  paper  pass  to  the  transferee  except  the  right  to  hold 
it  at  the  will  of  the  owner;  if  the  holder  intended  to  give 
or  to  sell  the  instrument  to  the  transferee,  his  position  is 
different.  He  is  not  the  legal  holder,  to  be  sure,  but  he 
has  acquired  rights  of  which  the  holder  cannot  deprive 


96         THE  LAW  OF  COMMERCIAL  PAPER 

him.  In  the  first  two  cases,  where  there  was  no  intention 
to  benefit  the  transferee,  the  owner  could  recover  the  instru- 
ment from  the  thief  or  the  transferee  whenever  he  chose. 
But  here  the  owner  has  voluntarily  parted  with  the  instru- 
ment, intending  to  benefit  the  transferee.  What  rights  has 
the  transferee  acquired?  He  has  the  right  to  collect  the 
instrument,  and,  if  it  is  not  paid,  to  sue  upon  it  in  the 
right  of  the  owner,  just  as  if  he  were  the  owner's  agent. 
He  stands  precisely  in  the  position  of  his  transferor  and 
consequently  holds  the  note  subject  to  the  same  defenses 
as  if  it  were  still  in  the  hands  of  his  transferor.  Thus,  if 
Carpenter  induces  Cridler  by  fraud  to  make  his  note  payable 
to  Carpenter,  and  he  sells  it  to  Walker,  an  innocent  pur- 
chaser, to  whom  the  instrument  is  delivered  without  in- 
dorsement, although  Carpenter  cannot  recover  the  note 
from  Walker,  Cridler  has  the  same  defense  against  Walker 
as  he  had  against  Carpenter.  The  fact  that  Walker  was 
an  innocent  purchaser  is  immaterial.  Of  course,  if  Car- 
penter had  indorsed  to  Walker,  Walker  could  have  re- 
covered. 

The  Statute  states  this  rule  as  follows: 

"Transfer  without  indorsement ;  subsequent  indorsement. 
§  49.  Where  the  holder  of  an  instrument  payable  to  his 
order  transfers  it  for  value  without  indorsing  it,  the  transfer 
vests  in  the  transferee  such  title  as  the  transferor  had 
therein." 

Suppose,  however,  that  subsequent  to  the  purchase  and 
delivery  Walker  learns  of  the  fraud  practiced  by  Carpenter, 
and  then  obtains  the  indorsement  of  Carpenter.  Can  he 
recover  from  the  maker?  The  general  rule  is  that  he  can- 
not. When  he  obtained  legal  title  to  the  note,  that  is,  when 
it  was  indorsed,  he  had  knowledge  of  the  fraud.  Whistler  v. 


NEGOTIATION  97 

Forster  (14  C.  B.  N.  S.  248)  is  an  illustration.  That  was 
an  action  against  the  drawer  of  a  bill  of  exchange,  payable 
to  Griffiths  &  Co.,  or  order,  which  had  been  sold  and 
delivered  (without  indorsement)  by  that  firm  to  the  plaintiff 
on  October  3.  Griffiths  &  Co.  had  secured  the  bill  from 
the  drawer,  the  defendant,  through  fraud.  Later,  and  after 
the  plaintiff  had  notice  of  the  fraud,  Griffiths  &  Co.  indorsed 
the  bill.  It  was  held  the  plaintiff  could  not  recover.  The 
judges  said: 

"Erie,  C.  J.  The  plea  is,  that  the  bill  was  obtained  from 
the  defendant  by  one  Griffiths  by  means  of  fraud,  and 
that  it  was  indorsed  to  the  plaintiff  after  he  had  notice  of 
the  fraud.  The  facts  are  shortly  these.  The  instrument 
was  a  negotiable  instrument,  which  had  been  fraudulently 
obtained  from  the  defendant  by  Griffiths,  and  had  been 
handed  over  by  Griffiths  to  the  plaintiff  in  part  satisfaction 
of  a  debt  of  a  larger  amount.  But  Griffiths,  at  the  time  he 
so  handed  over  the  bill  to  the  plaintiff,  omitted  to  indorse  it. 
Under  these  circumstances,  the  condition  of  things  was 
this,  that  the  plaintiff  had  at  that  time  the  same  rights  as 
if  an  ordinary  chattel  had  passed  to  him  by  an  equitable 
assignment;  he  would  have  all  the  rights  which  Griffiths 
could  convey  to  him.  Now,  Griffiths  having  defrauded  the 
defendant  of  the  bill,  he  could  pass  no  right  by  merely 
handing  over  the  bill  to  another.  According  to  the  law 
merchant,  the  title  to  a  negotiable  instrument  passes  by 
indorsement  and  delivery.  A  title  so  acquired  is  good 
against  all  the  world,  provided  the  instrument  is  taken 
for  value  and  without  notice  of  any  fraud.  The  plaintiff's 
title  under  the  equitable  assignment  here,  therefore,  was 
to  be  rendered  valid  by  indorsement;  but  at  the  time  he 
obtained  the  indorsement  he  had  notice  that  the  bill  had 
been  fraudulently  obtained  by  Griffiths  from  the  defendant, 
and  that  Griffiths  had  no  right  to  make  the  indorsement. 


98         THE  LAW  OF  COMMERCIAL  PAPER 

Assuming,  therefore,  that  there  may  be  conflicting  equities 
between  the  plaintiff  and  the  defendant,  I  think  the  right 
should  prevail  according  to  the  rule  of  law,  and  that  the 
plaintiff  had  no  title  as  transferee  of  the  bill  at  all. 

"Willes,  J.  I  concur  with  my  lord  as  to  both  points.  As 
to  the  second  point,  the  general  rule  of  law  is  undoubted, 
that  no  one  can  transfer  a  better  title  than  he  himself  pos- 
sesses :  Nemo  dat  quod  non  habet.  To  this  there  are  some 
exceptions,  one  of  which  arises  out  of  the  rule  of  the 
Law  Merchant  as  to  negotiable  instruments.  These,  being 
part  of  the  currency,  are  subject  to  the  same  rule  as  money ; 
and  if  such  an  instrument  be  transferred  in  good  faith,  for 
value,  before  it  is  overdue,  it  becomes  available  in  the 
hands  of  the  holder,  notwithstanding  fraud  which  would 
have  rendered  it  unavailable  in  the  hands  of  a  previous 
holder.  This  rule,  however,  is  only  intended  to  favor  trans- 
fers in  the  ordinary  and  usual  manner  whereby  a  title  is 
acquired  according  to  the  Law  Merchant,  and  not  to  a 
transfer  which  is  valid  in  equity  according  to  the  doctrine 
respecting  the  assignment  of  choses  in  action,  now,  indeed 
recognized,  and  in  many  instances  enforced,  by  courts  of 
law;  and  it  is  therefore  clear  that,  in  order  to  acquire  the 
benefit  of  this  rule,  the  holder  of  the  bill  must,  if  it  be 
payable  to  order,  obtain  an  indorsement,  and  that  he  is 
affected  by  notice  of  a  fraud  received  before  he  does  so. 
Until  he  does  so,  he  is  merely  in  the  position  of  the  assignee 
of  an  ordinary  chose  in  action,  and  has  no  better  right 
than  his  assignor.  When  he  does  so,  he  is  affected  by 
fraud,  which  he  knew  of  before  the  indorsement. 

"Keating,  J.  I  am  of  the  same  opinion.  The  plaintiff 
sues  as  indorsee  of  the  bill  in  question.  The  plea  in  sub- 
stance is  that  the  defendant  was  defrauded  of  it  by  the 
person  to  whose  order  it  is  made  payable,  and  that  the 


NEGOTIATION  99 

plaintiff  had  notice  of  that  fact  before  the  instrument  was 
indorsed  to  him.  The  question  is,  when  was  the  bill  first 
indorsed  to  the  plaintiff.  It  must  be  recollected  that  the 
plaintiff  is  suing  in  a  court  of  law,  and  that  the  right  to 
sue  in  a  court  of  law  upon  a  negotiable  instrument  is  not 
complete  without  a  written  indorsement.  Now,  before  the 
plaintiff's  right  to  sue  was  rendered  complete  by  a  written 
indorsement,  he  had  notice  of  the  fraud.  The  subsequent 
indorsement,  therefore,  transferred  no  title  to  sue."  (Pp. 
343-345*  Vol.  I,  Ames  Cases.) 

The  rule  of  Whistler  v.  Forster  is  stated  in  the  Negotiable 
Instruments  Law  as  follows: 

"For  the  purpose  of  determining  whether  the  transferee 
(without  indorsement)  is  a  holder  in  due  course,  the 
negotiation  takes  effect  as  of  the  time  when  the  indorsement 
is  actually  made."  (Neg.  Inst.  Law,  §49.) 

We  have  now  seen  that  the  transferee  to  whom  an  instru- 
ment has  been  given  or  sold  without  indorsement  is  entitled 
to  the  paper  against  his  transferor,  and  we  have  discussed 
his  rights  against  the  maker  both  before  and  after  indorse- 
ment. In  a  case  where  the  instrument  has  been  sold  to  him, 
he  has  a  further  right,  viz.,  to  compel  the  transferor  to 
indorse.  "The  transferee  acquires  in  addition  the  right  to 
have  the  indorsement  of  the  transferor."  (Neg.  Inst.  Law, 

§49.) 


CHAPTER  VII 

HOLDER  IN   DUE  COURSE 

Legal  defenses  distinguished  from  personal  or  equitable 
defenses. — Section  77.  If  you  are  the  payee  of  a  promis- 
sory note  payable  to  your  order  or  to  bearer,  which  has 
been  delivered  to  you  in  exchange  for  value  paid,  you  may 
transfer  the  note  to  whom  you  please  by  employing  the 
is,  by,  indorsement  andjlelivery  if  payable 
^ 


tf^orderj  by  delivery^sirpply  if  payaDTeto^bearer.    Whether 
|  the  transferee  pays  you  anytlung^ls  immaterial.  -   Though 
I  \yw*9™e  *ne  paper  awjty^ouxJxaiisfereeLjQiay-^nforce  the 
if  note  against  the  maker.    This  is  because  tlie^payment  of .... 
j  value_pxJftejjiyjn£j^a-x^  ^3L^?  transferee  -is 

•'{i^f^^esse^itiaj  partjDJiJhe  act  of  transfer.  A  bill  or  note 
1  \  is  transferred  either  by  indorsement  or  by  delivery.  Nothing 
C^more  is  required. 

In  the  case  supposed  in  the  preceding  paragraph  where 
the  payee  gives  the  instrument  away,  do  the  transferee's  or 
holder's  rights  against  the  maker  differ  from  the  rights  he 
would  have  acquired  had  he  paid  money  or  delivered  prop- 
erty to  the  payee  for  the  note?  Not  at  all.  An  indorsee 
or  bearer  who  pays  nothing  gets  every  right  against  the 
maker  that  exists.  The  indorsee  or  bearer  who  pays  value 
can  get  no  more.  But,  it  is  suggested,  suppose  you  had 
defrauded  the  maker  of  the  note  as  payment  for  a  worth- 
less patent  right  fraudulently  represented  to  him  to  be  a 
valuable  invention.  In  such  a  case  would  you  be  entitled 

100 


!:    I 
HOLDER  IN  DUE  tfoUKSE  101 


to  recover  against  the  maker?  Certainly  not.  If  you 
the  note  away  would  your  transferee  be  entitled  to  recover  ? 
No.  If  you  sold  the  note  to  me  for  value  and  I  knew 
nothing  of  the  fraud  practiced,  could  I  recover?  Yes. 
How  then  can  it  be  said  that  a  holder  who  pays  value  and 
has  no  notice  gets  no  greater  rights  than  a  holder  to  whom 
the  instrument  is  given  ?  Let  us  see.  The  reason  why  you 
cannot  recover  on  the  note  is  that,  although  it  is  a  perfectly 
valid  note  intentionally  signed  and  delivered  by  the  maker 
to  you  as  payee,  it  would  be  the  grossest  injustice  to  allow 
you  to  enforce  an  obligation  thus  secured  by  fraud.  The 
same  reason  applies  to  your  transferee.  Although  he  became 
the  legal  holder  and  owner  of  the  note  by  the  transfer,  since 
he  parted  with  nothing  for  the  note,  he  will  be  no  poorer  if 
not  allowed  to  enforce  the  note  than  he  was  before  he 
received  it;  and  it  is  more  just,  therefore,  not  to  allow  him 
to  enforce  the  note  and  thereby  enrich  himself  at  the 
expense  of  the  defrauded  maker,  But  if  you  sell  the  note 
to  me  and  I  part  with  money  or  property  in  exchange  for  it 
in  good  faith  and  in  ignorance  of  the  fraud  practiced  by 
you,  why  should  I  not  enforce  the  legal  obligation  I  have 
acquired  ?  That  I  have  acquired  the  obligation  of  the  maker 
to  pay  is  clear,  because  you  owned  that  obligation  and 
transferred  it  to  me.  It  is  true  you  could  not  enforce  it 
because  it  was  unjust  for  you  to  do  so.  It  is  true  the 
person  to  whom  you  gave  the  note  could  not  enforce  it 
because  he  gave  nothing  for  the  obligation  and  to  allow 
him  to  enforce  it  would  be  allowing  him  to  enrich  himself 
at  the  expense  of  the  defrauded  maker.  But  do  either  of 
these  reasons  apply  to  me?  I  committed  no  fraud  and  I 
paid  value  in  good  faith.  I  owe  the  obligation  of  the 
maker.  I  was  guilty  of  no  unconscientious  conduct  in 
receiving  it,  and  I  parted  with  value  for  it. 

It  is  clear,  therefore,  that  an  innocent  purchaser  for  value 


102       THE  LAW  OF  COMMERCIAL  PAPER 

gets  no  greater  rights  against  the  maker  than  one  to  whom 
the  instrument  is  given.  The  difference  between  the  posi- 
tion of  the  innocent  purchaser  for  value  and  of  one  to 
whom  the  instrument  is  given  is  that  the  maker  has  the 
defense  of  injustice  against  the  latter,  but  not  against  the 
former. 

It  follows  that  being  an  innocent  purchaser  for  value  does 
not  better  the  position  of  a  holder  unless  he  has  acquired 
ownership  in  the  negotiable  instrument.  If  he  has  acquired 
ownership,  by  transfer  from  the  payee  innocently  and  for 
value,  then  the  defense  that  it  is  unjust  for  the  fraudulent 
payee  to  enforce  the  instrument  is  not  available  against  him. 
The  doctrine  of  innocent  purchaser  for  value  cuts  off  de- 
fenses against  the  payee  based  upon  principles  6f  justice 
and  not  those  based  upon  rules  of  law  governing  the  form, 
inception  and  transfer  of  negotiable  instruments. 

If  the  payee  has  no  legal  rights  against  the  maker  because 
of  failure  to  comply  with  the  legal  rules  as  to  form,  incep- 
tion, etc.,  an  innocent  purchaser  for  value  from  him  gets 
no  rights  against  the  maker  whatever. 

If  you  turn  to  Section  40,  Chapter  IV,  you  will  find  a 
case  which  illustrates  the  point  under  discussion.  In  that 
case  the  court  said: 

"The  reasoning  of  the  above  cases  is  entirely  satisfactory 
and  conclusive  upon  this  point.  The  inquiry  in  such  cases 
goes  back  of  all  questions  of  negotiability,  or  of  the  transfer 
of  the  supposed  paper  to  a  purchaser  for  value,  before 
maturity  and  without  notice.  It  challenges  the  origin  or 
existence  of  the  paper  itself ;  and  the  proposition  is  to  show 
that  it  is  not  in  law  or  in  fact  what  it  purports  to  be, 
namely,  the  promissory  note  of  the  supposed  maker.  For 


HOLDER  IN  DUE  COURSE  103 

the  purpose  of  setting  on  foot  or  pursuing  this  inquiry,  it 
is  immaterial  that  the  supposed  instrument  is  negotiable  in 
form,  or  that  it  may  have  passed  to  the  hands  of  a  bona  fide 
holder  for  value.  Negotiability  in  such  cases  presupposes 
the  existence  of  the  instrument  as  having  been  made  by  the 
party  whose  name  is  subscribed;  for,  until  it  has  been  so 
made  and  has  such  actual  legal  existence,  it  is  absurd  to 
talk  about  a  negotiation,  or  transfer,  or  bona  fide  holder  of 
it,  within  the  meaning  of  the  Law  Merchant.  That  which, 
in  contemplation  of  law,  never  existed  as  a  negotiable  in- 
strument cannot  be  held  to  be  such;  and  to  say  that  it  is, 
and  has  the  qualities  of  negotiability  because  it  assumes  the 
form  of  that  kind  of  paper,  and  thus  to  shut  out  all  inquiry 
into  its  existence,  or  whether  it  is  really  and  truly  what  it 
purports  to  be,  is  petitio  principii — (begging  the  question 
altogether).  It  is,  to  use  a  homely  phrase,  putting  the  cart 
before  the  horse,  and  reversing  the  true  order  of  reasoning, 
or  rather  preventing  all  correct  reasoning  and  investi- 
gation, by*  assuming  the  truth  of  the  conclusion,  and  so 
precluding  any  inquiry  into  the  antecedent  fact  or  premise, 
which  is  the  first  point  to  be  inquired  of  and  ascertained. 
For  the  purposes  of  this  first  inquiry,  which  must  always 
open  when  the  objection  is  raised,  it  is  immaterial  what  may 
be  the  nature  of  the  supposed  instrument,  whether  nego- 
tiable or  not,  or  whether  transferred  or  negotiated,  or  to 
whom  or  in  what  manner,  or  for  what  consideration  or 
value  paid  by  the  holder.  It  must  always  be  competent  for 
the  party  proposed  to  be  charged  upon  any  written  instru- 
ment, to  show  that  it  is  not  his  instrument  or  obligation. 
The  principle  is  the  same  as  where  instruments  are  made  by 
persons  having  no  capacity  to  make  binding  contracts,  as 
by  infants,  married  women,  or  insane  persons;  or  where 
they  are  void  for  other  cause,  as  for  usury;  or  where  they 
are  executed  as  by  an  agent,  but  without  authority  to  bind 
the  supposed  principal.  In  these  and  all  like  cases,  no 


104       THE  LAW  OF  COMMERCIAL  PAPER 

additional  validity  is  given  to  the  instruments  by  putting 
them  in  the  form  of  negotiable  paper." 

In  Section  50,  Chapter  IV,  are  further  illustrations  of 
the  rule.  The  cases  referred  to  in  that  section  are  cases 
where  a  blank  piece  of  paper  bearing  defendant's  signature, 
or  an  instrument  incomplete  in  form  bearing  defendant's 
signature,  got  out  of  the  defendant's  hands  without  any 
intention  on  his  part  that  the  paper  should  be  turned  into 
a  negotiable  instrument.  It  was  held  the  defendant  was 
not  liable,  though  the  paper  had  been  negotiated  to  an  inno- 
cent holder  for  value.  One  of  these  cases,  Caulkins  v. 
Whisler  (29  la.  495),  is  given  below: 

Caulkins  v.  Whisler. 

(Supreme  Court  of  Iowa,  1870.    29  Iowa,  495, 
4  Am.  Rep.  236.) 

Action  upon  a  promissory  note ;  defense,  that  the  instru- 
ment is  a  forgery.  The  cause  was  submitted  to  the  court 
without  a  jury.  The  court  found  the  following  facts :  De- 
fendant entered  into  a  contract  with  one  Smith  to  sell  for 
him,  as  his  agent,  grain  seeders.  At  Smith's  request, 
defendant  signed  his  name  upon  a  blank  piece  of  paper, 
which  Smith  was  to  send  to  the  manufacturers  of  the 
seeders,  that  they  might  know  defendant's  signature  upon 
orders  which  he  should  make  upon  them  for  the  machines. 
The  signature  was  made  for  no  other  purpose.  The  instru- 
ment in  suit  was  printed  over  the  signature  of  defendant, 
so  obtained  without  his  knowledge  and  consent,  and  the 
stamp  in  the  same  manner  attached  and  canceled.  The 
plaintiff  purchased  the  note  before  maturity,  for  a  valid 
consideration,  and  without  knowledge  of  any  matter  con- 
nected with  its  execution.  Upon  these  findings,  the  court 


HOLDER  IN  DUE  COURSE  105 

held  that  the  note  is  a  forgery  and  void,  and  that  plaintiff 
is  not  entitled  to  recover  thereon.    Plaintiff  appeals. 

Beck,  J.  A  holder  of  negotiable  paper,  acquired  before 
dishonor,  is  not  protected  against  defenses  that  make  void 
the  instrument.  He  can  have  no  claim  upon  forged  paper 
against  the  person  whose  name  is  falsely  affixed  thereto 
as  the  maker,  and  who  is  without  fault  as  to  the  forgery 
and  the  taking  of  the  paper  by  the  holder.  I  Parsons,  "Bills 
and  Notes,"  75,  and  authorities  cited. 

Is  the  note  sued  upon  a  forged  instrument  ?  "The  making 
or  alteration  of  any  writing  with  fraudulent  intent,  whereby 
another  may  be  prejudiced,  is  forgery."  State  v.  Wooderd, 
20  Iowa,  542;  Revision,  No.  4253.  In  order  to  constitute 
the  offense  of  forgery,  it  is  not  necessary  that  the  signa- 
ture of  the  instrument  be  false.  The  instrument  may  be 
altered  so  that  it  is  not  the  instrument  signed  by  the  maker, 
and,  if  this  be  fraudulently  and  falsely  done,  it  is  forgery. 
So  if  words  be  added  to  change  its  effect,  with  like 
intent  it  is  forgery.  In  the  case  before  us  the  instrument 
was  falsely  and  fraudulently  made  over  the  genuine  signa- 
ture of  defendant,  which  was  not  obtained  for  the  purpose 
of  binding  defendant  by  any  contract.  It  is  evident  that 
this  differs,  in  no  respect,  from  the  cases  mentioned,  and 
that  the  note  is  a  forgery  and  void.  (See  2  Parsons,  "Bills 
and  Notes,"  584.) 

The  case  differs  materially  in  its  facts  from  the  cases 
cited  in  support  of  plaintiff's  right  to  recover.  In  those 
cases  blanks  were  filled  up  contrary  to  the  direction  of  the 
maker,  or  without  his  authority.  But  in  all  of  such  cases 
the  makers  intended  to  execute  an  instrument  that  should 
be  binding  upon  them.  Blanks  were  filled  up  contrary  to 
the  authority  given  by  the  makers,  or  in  some  other  way 


106       THE  LAW  OF  COMMERCIAL  PAPER 

the  instruments  were  made  so  that  they  did  not  correspond 
with  the  intention  of  the  makers;  but  in  all  such  cases 
there  were  makers  and  instruments,  and  through  the  frauds 
of  those  to  whom  the  instruments  were  intrusted  they  were 
thus  made  to  be  of  different  effect  than  was  designed  by  the 
makers.  In  these  cases,  it  is  correctly  held  that,  while  the 
parties  perpetrating  the  fraud  in  some  cases  may  have  been 
guilty  of  forgery,  yet  the  makers  were  bound  upon  the 
instruments,  as  against  holders  in  good  faith  and  for  value. 
The  reason  is  obvious.  The  maker  ought  rather  to  suffer, 
on  account  of  the  fraudulent  act  of  one  to  whom  he  in- 
trusts his  paper,  or  who  is  made  his  agent  in  respect  of 
it,  than  an  innocent  party.  The  law  esteems  him  in  fault, 
in  thus  putting  it  in  the  power  of  another  to  perpetrate  the 
fraud,  and  requires  him  to  bear  the  loss  consequent  upon 
his  negligence.  In  the  case  under  consideration  no  fault 
can  be  imputed  to  the  defendant.  He  did  not  intrust  his 
signature  to  the  possession  of  the  forger  for  the  purpose  of 
binding  himself  by  a  contract.  He  conferred  no  power 
upon  the  party  who  committed  the  crime  to  use  it  for  any 
such  purpose.  He  was  not  guilty  of  negligence  in  thus 
giving  it,  for  it  is  not  unusual,  in  order  to  identify  signa- 
tures, and  for  other  purposes,  for  men  thus  to  make  their 
autographs.  The  defendant  cannot  be  regarded  as  being  so 
far  in  fault  in  the  transaction  that  he  ought  to  be  required 
to  bear  the  loss  resulting  from  the  crime. 

In  our  opinion  the  decision  of  the  circuit  court  is  in  accord 
with  the  law,  and  is  therefore  affirmed. 

Other  instances  of  defenses  which  are  good  against  an 
innocent  holder  for  value  because  they  show  that  the  payee 
from  whom  the  holder  bought  had  no  rights  on  the  instru- 
ment are  as  follows: 


HOLDER  IN  DUE  COURSE  107 

Infancy. — It  is  a  general  rule  of  law  that  a  contract 
made  by  persons  under  legal  age  is  void  or  voidable,  that  is, 
cannot  be  enforced  against  him  without  his  assent.  So  an 
infant  maker  of  a  note  has  the  defense  of  infancy  against 
an  innocent  holder  for  value. 

Insanity. — Like  the  contracts  of  an  infant,  those  of  an 
insane  person  or  idiot  are  void  or  voidable,  and  the  defense 
is  available  not  only  against  the  payee  but  against  all  pur- 
chasers from  him. 

Forgery. — If  one's  name  is  signed  to  a  negotiable  instru- 
ment without  his  authority,  he  is  not  bound.  A  negotiable 
instrument  must  be  signed  by  the  maker,  drawer,  or  in- 
dorser,  or  by  his  authorised  agent. 

Illegality. — If  a  statute  prescribes  that  certain  notes  shall 
be  null  and  void,  they  are  not  enforceable  in  the  hands  of 
any  holder.  «  Statutes  of  this  kind  sometimes  exist  with 
reference  to  instruments  given  on  Sunday,  instruments 
given  for  gambling  debts,  instruments  which  are  usurious. 
Such  statutes  are,  however,  infrequent. 

These  defenses  which  are  good  against  any  holder  are 
called  legal  defenses. 

The  defenses  which  are  not  good  against  innocent  pur- 
chasers for  value  are  called  personal  or  equitable  because 
they  are  good  only  against  persons  whose  conduct  with 
respect  to  the  paper  has  made  it  inequitable  or  unconsci- 
entious  to  enforce  it.  Instances  of  such  defenses  are : 

Fraud. — Examples  of  fraud  as  a  personal  or  equitable 
defense  are:  the  case  discussed  at  the  beginning  of  this 
assignment;  and  the  case  in  Section  43,  Chapter  IV. 


• 


io8       THE  LAW  OF  COMMERCIAL  PAPER 

Duress. — If  a  payee  induces  the  making  and  delivery  of 
a  note  by  the  maker  through  force,  threats  of  force,  or  fear, 
this  conduct  of  the  payee,  called  duress,  which,  although  it 
does  not  interfere  with  the  legal  inception  of  the  note,  does 
make  it  unconscientious  for  him  to  enforce  it,  is  a  personal 
or  equitable  defense. 

Absence  of  voluntary  delivery. — This  is  a  personal  or 
equitable  defense.  See  Section  44,  Chapter  IV.  (Absence 
of  Consideration  is  a  personal  or  equitable  defense.  See 
Neg.  Inst.  Law,  §28.) 

Delivery  upon  condition  is  a  personal  or  equitable  de- 
fense. See  Section  46,  Chapter  IV. 

Illegality. — If  a  statute  forbids  the  making  of  a  note 
under  certain  conditions,  as,  for  example,  on  Sunday,  or 
for  a  gambling  debt,  or  for  liquor,  but  does  not  declare 
the  note  void,  then  the  note  may  be  enforced  by  an  inno- 
cent purchaser  though  not  by  the  payee. 

To  sum  up,  the  following  are  JegalJeJEenses  available 
against  any  purchaser  from  the  payee  even  though  he  be  an 
innocent  purchaser  for  value : 

Infancy  ' 
7 ,  Insanity 
Forgery 

•  Illegality  (under  some  statutes) 

*  No  intentional  delivery  of  incomplete  instrument  as  such. 

The  following  are  personal  or  equitable  defenses  against 
innocent  purchasers,  though  good  against  the  payee : 

Fraud 


HOLDER  IN  DUE  COURSE  109 

Duress 

Illegality  (under  most  statutes) 

No  voluntary  delivery 

That  the  delivery  was  upon  condition 

Absence  of  consideration.    • 

What  is  implicit  in  the  phrase  "holder  in  due  course." — 
Section  78.  Now  that  we  have  distinguished  between  legal 
and  equitable  defenses,  and  have  seen  that  the  latter  are 
not  available  against  an  innocent  purchaser  for  value,  we 
must  examine  in  detail  the  qualifications  of  an  innocent 
purchaser  for  value,  or  a  "holder  in  due  course,"  as  such  a 
purchaser  is  called  in  the  statute.  We  have  already  seen 
that  the  words  ."holder"  and  "purchaser"  assume  the  exist- 
ence of  a  negotiable  instrument  which  may  be  purchased 
and  owned  or  held  by  a  holder.  No  one  can  be  the  holder 
of  a  negotiable  instrument  which  has  never  had  a  legal 
inception  as  a  negotiable  instrument.  We  have  also  as- 
sumed in  our,  discussion  that  there  must  have  been  a  valid 
transfer  by  indorsement  or  by  delivery  as  the  case  might  be. 
No  one  can  be  an  owner  or  holder  of  a  negotiable  instru- 
ment unless  and  until  it  has  been  transferred  to  him  in  the 
form  prescribed  by  law.  For  instance,  if  you  were  the  payee 
of  a  promissory  note  payable  to  your  order,  and  I  stole  the 
unindorsed  note  from  you  and  sold  it  to  X,  an  innocent 
purchaser,  after  forging  your  indorsement,  X  would  get 
no  rights  whatever  in  the  instrument.  An  instrument  pay- 
able to  order  can  only  be  transferred  by  the  indorsement 
of  the  payee.  In  the  case  supposed,  the  instrument  did  not 
bear  your  indorsement,  and  my  forgery  and  delivery  of  the 
note  to  X  were  ineffective  to  give  him  any  title  to  the 
paper,  that  is,  to  make  him  the  holder  of  it.  Bearing  in 
mind  that  in  the  following  discussion  we  are  assuming  ( i ) 
the  existence  of  a  negotiable  instrument,  and  (2)  that  it 
has  been  legally  transferred  to  one  who  has  by  the  transfer 


I  io        THE  LAW  OF  COMMERCIAL  PAPER 

become  the  holder  of  it,  we  may  proceed  with  our  examina- 
tion of  the  qualifications  which  entitle  a  holder  to  the  posi- 
tion of  a  holder  in  due  course. 

Good  faith.  Actual  notice. — Section  79.  A  holder  to  be 
a  holder  in  due  course  must  have  acquired  the  instrument  in 
good  faith  and  without  notice  of  the  defenses  which  the 
maker  or  acceptor  has  against  the  payee.  If  one  pays  value 
to  a  payee  who  has  practiced  fraud  upon  the  maker,  know- 
ing of  the  fraud,  to  allow  him  to  recover  would  be  afford- 
ing a  means  by  which  he  could  make  a  gift  to  the  fraudulent 
payee  at  the  ultimate  expense  of  the  defrauded  maker.  To 
deny  him  a  recovery  is  either  penalizing  his  impudence  or 
folly,  or  punishing  his  attemped  cooperation  in  the  fraud 
of  the  payee. 

A  holder  is  one  in  good  faith  and  without  notice  when 
as  a  matter  of  fact  he  acted  in  actual  good  faith  and  without 
actual  knowledge.  Neither  gross  carelessness  nor  blun- 
dering stupidity  are  inconsistent  with  actual  good  faith.  "If 
value  is  given  for  a  bill,  it  is  not  enough  to  show  that 
there  was  carelessness,  negligence,  or  foolishness  in  not 
suspecting  that  the  bill  was  wrong,  when  there  were  cir- 
cumstances which  might  have  led  to  such  suspicion.  All 
these  are  matters  which  tend  to  show  that  there  was  dis- 
honesty in  not  doing  it;  but  they  do  not  in  themselves 
furnish  a  defense  to  an  action  on  a  bill  of  exchange.  I 
take  it  that  it  is  necessary  to  show,  whether  in  the  case  of  a 
party  who  is  solvent  and  sui  juris,  or  as  against  the  case  of 
a  bankrupt,  that  the  person  who  gave  value  (whether  great 
or  small)  for  the  bill  was  affected  with  notice  that  there 
was  something  wrong  about  it  when  he  took  it ;  but  he  need 
not  have  had  notice  of  what  the  particular  wrong  was.  If 
a  man,  knowing  that  a  bill  was  in  the  hands  of  a  person 
who  had  no  right  to  it,  should  think  that  perhaps  the 


HOLDER  IN  DUE  COURSE  in 

holder  had  stolen  it,  when  in  truth  the  latter  had  obtained 
it  by  false  pretenses,  I  think  he  would  be  taking  it  at  his 
peril.  But  such  evidence  of  carelessness  or  blindness  might, 
with  other  evidence  upon  the  question,  which  appears  to  be 
the  real  one,  show  he  knew  that  there  was  something 
wrong  in  the  bill.  If  he  was  (so  to  speak)  honestly  blun- 
dering and  careless,  he  would  not  be  disentitled  to  recover ; 
but  if  it  appeared  that  he  must  have  had  a  suspicion  of 
something  wrong,  and  that  he  refrained  from  asking  ques- 
tions, not  because  he  was  an  honest  blunderer  or  stupid 
man,  but  because  he  thought  in  his  secret  mind :  'I  suspect 
there  is  something  wrong,  and  if  I  ask  questions  it  will 
be  no  longer  suspecting,  but  knowing,  and  then  I  shall  be 
unable  to  recover/  I  think  that  is  dishonesty."  (Jones  v. 
Gordon,  2  App.  Cas.  616.)  §  52,  subdivision  4,  and  §  56 
of  the  Negotiable  Instruments  Law  state  the  law  in  accord- 
ance with  the  doctrine  stated  above. 

Constructive  notice. — Section  80.  To  the  rule  that  bad 
faith  and  knowledge  mean  actual  bad  faith  and  actual 
knowledge,  there  is  a  limitation.  Every  person  taking  a 
negotiable  instrument  is  treated  as  if  he  knew  every  fact 
disclosed  by  the  face  of  the  paper.  Thus,  a  holder  who 
purchases  a  bill  or  note  after  the  date  it  falls  due,  is  not  a 
holder  in  due  course.  The  face  of  the  paper  shows  the 
time  when  payment  is  due.  Under  the  rule  just  stated,  the 
holder  is  treated  as  if  he  knew  the  paper  was  overdue  at  the 
time  of  his  purchase,  and  the  fact  that  the  commercial  paper 
is  outstanding  and  unpaid  after  its  maturity  is  such  a  cir- 
cumstance of  suspicion  that  no  one  purchasing  in  the  face 
of  it  can  be  a  holder  in  good  faith.  In  Brown  +v.  Davies 
(3  Term  Rep.  80),  Davies  made  a  note  payable  to  Sandal, 
or  order,  due  on  November  13.  The  note  was  not  paid  at 
maturity,  but  some  weeks  later  Davies  paid  the  amount  to 
Sandal,  but  did  not  receive  the  instrument  from  him.  San- 


ii2        THE  LAW  OF  COMMERCIAL  PAPER 

dal  then  transferred  the  note  to  the  plaintiff,  who  paid  value 
and  had  no  notice  of  the  payment.  It  was  held  that  the 
defense  was  nevertheless  available  against  the  plaintiff, 
because  he  had  received  the  instrument  after  its  maturity. 
One  of  the  judges  said : 

"There  is  this  distinction  between  bills  indorsed  before 
and  after  they  become  due.  If  a  note  indorsed  be  not 
due  at  the  time,  it  carries  no  suspicion  whatever  on  the 
face  of  it,  and  the  party  receives  it  on  its  own  intrinsic 
credit.  But  if  it  is  overdue,  though  I  do  not  say  by  law 
it  is  not  negotiable,  yet  certainly  it  is  out  of  the  common 
course  of  dealing,  and  does  give  rise  to  suspicion.  Still 
stronger  ought  that  suspicion  to  be  when  it  appears  on  the 
face  of  the  note  to  have  been  noted  for  nonpayment,  which 
was  the  case  here.  But  generally,  when  a  note  is  due,  the 
party  receiving  it  takes  it  on  the  credit  of  the  person  who 
gives  it  to  him.  Upon  this  ground  it  was  that,  in  the  case 
in  Cornwall,  I  held  that  the  defendant,  who  was  the  maker, 
was  entitled  to  set  up  the  same  defense  that  he  might  have 
done  against  the  original  payee ;  and  the  same  doctrine  has 
been  often  ruled  at  Guildhall.  A  fair  indorsee  can  never 
be  injured  by  this  rule;  for,  if  the  transaction  be  a  fair 
one,  he  will  still  be  entitled  to  recover.  But  it  may  be  a 
useful  rule  to  detect  fraud  whenever  that  has  been  prac- 
ticed." (Upon  Lord  Kenyon's  appearance  to  dissent  from 
the  generality  of  the  doctrine  held  by  Mr.  Justice  Buller, 
he  proceeded  to  observe)  :  "My  Lord  thinks  I  have  gone 
rather  too  far  in  something  that  I  have  said,  but  it  is  to  be 
observed  that  I  am  speaking  of  cases  where  the  note  has 
been  endorsed  after  it  became  due,  when  I  consider  it  as  a 
note  newly  drawn  by  the  person  endorsing  it." 

Another  said :  "I  think  the  rule  laid  down  by  my  Brother 
Buller,  in  the  case  in  Cornwall,  is  a  very  safe  and  proper 


HOLDER  IN  DUE  COURSE  113 

one:  That,  where  a  note  is  overdue,  that  alone  is  such  a 
suspicious  circumstance  as  maizes  it  incumbent  on  the  party 
receiving  it  to  satisfy  himself  that  it  is  a  good  one;  other- 
wise much  mischief  might  arise."  §  52,  subdivision  2,  of 
the  Negotiable  Instruments  Law  expressly  covers  this  point. 

Another  class  of  cases  in  which  the  rule  of  constructive 
notice  is  invoked  includes  cases  in  which  one,  acting  without 
any  actual  knowledge  of  his  debtor's  breach  of  faith,  takes 
negotiable  paper  signed  by  the  debtor  in  the  name  of  his 
principal  or  employer,  in  payment  of  the  debt.  In  such  a 
case,  the  creditor  is  charged  with  knowledge  that  the  debtor 
is  exceeding  his  authority  as  agent  in  giving  his  principal's 
note  in  payment  of  a  personal  debt.  However,  if  the  face 
of  the  paper  does  not  disclose  the  irregularity  of  the  agent's 
conduct,  a  purchaser  is  not  charged  with  knowledge  of  the 
agent's  breach  of  authority,  and  he  may  be  a  holder  in  due 
course.  Thus,  in  Cheever  v.  Railroad  Co.  (150  N.  Y.  59), 
it  appeared  that  Frost,  the  president  of  the  railroad, 
executed  a  promissory  note  in  the  following  form: 

Greenville,  Pa.,  Feb'y  24,  1888. 
$5000 

Four  months  after  date  the  Pittsburg,  Shenango  and  Lake 
Erie  Railroad  Company  promises  to  pay  to  the  order  of  John 
T.  Bruen  five  thousand  dollars  at  the  American  Exchange  Na- 
tional Bank,  New  York  City.  Value  received. 

Attest:  E.  S.  Templeton,  Secretary. 

THE  PITTSBURG,  SHENANGO  &  LAKE  ERIE  RAILROAD  COMPANY, 

By  M.  S.  FROST,  President. 

Bruen,  the  payee  named  in  the  note,  was  Frost's  private 
secretary,  and  immediately  indorsed  the  instrument  in 
blank  and  delivered  it  to  Frost.  Bruen  acted  merely  as  a 
"dummy"  in  the  transaction.  Frost  transferred  the  note  to 
the  plaintiff  for  a  loan  for  the  personal  benefit  of  Frost. 


ii4       THE  LAW  OF  COMMERCIAL  PAPER 

It  was  held  that  the  plaintiff  could  recover  on  the  note  from 
the  railroad.  In  its  opinion  the  Court  said :  "The  principle 
that  applies  in  a  case  where  an  officer  of  a  corporation 
makes  the  corporate  obligation  payable  to  himself,  and  then 
attempts  to  deal  with  it  for  his  own  benefit,  does  not  aid 
in  solving  the  question  in  this  case.  When  paper  of  that 
character  is  presented  by  the  officer  or  agent  of  the  cor- 
poration, it  bears  upon  its  face  sufficient  notice  of  the 
incapacity  of  the  officer  or  agent  to  issue  it.  ...  Here  the 
officer  was  not  dealing  with  corporate  notes  payable  to 
himself,  but  with  notes  that  had  been  regularly  issued,  so 
far  as  appeared  from  their  face,  to  a  stranger." 

Value. — Section  81.  In  order  to  constitute  one  a  holder 
in  due  course,  not  only  must  he  purchase  without  either 
actual  or  constructive  notice  of  defenses  to  the  instrument, 
but  he  must  have  parted  with  value  therefor.  It  would  be 
unjust  to  allow  one  to  whom  a  fraudulent  payee  had  deliv- 
ered the  note  as  a  gift  to  enforce  it  and  thereby  enrich 
himself  at  the  expense  of  the  defrauded  maker, 

The  value  which  a  purchaser  must  part  with  in  order  to 
be  a  holder  in  due  course  may  be  money,  property,  the 
performance  of  services,  or  the  surrender  of  a  legal  right. 
For  example,  if  you  owe  me  $100  and  I  accept  a  bill  or 
note  in  payment  of  the  debt,  I  have  parted  with  value  for 
the  note  by  surrendering  my  legal  right  to  sue  you  upon 
the  debt.  Or,  if  instead  of  taking  the  note  in  payment  of 
your  debt,  I  take  it  upon  the  agreement  that  I  will  not  sue 
you  on  the  debt  unless  and  until  the  note  is  unpaid,  I  have 
parted  with  value  by  surrendering,  during  the  time  that  the 
note  is  to  run,  my  right  to  sue  you.  If  I  took  the  note  from 
you  simply  as  security  for  your  debt,  that  is,  neither  in 
payment  nor  under  an  agreement  not  to  sue  you  until  its 
maturity,  it  was  a  much  debated  question  whether  I  became 


HOLDER  IN  DUE  COURSE  115 

the  holder  for  value  or  not.  In  most  jurisdictions  it  is  held 
that  I  did.  The  leading  case  for  this  view  is  Railroad  Co.  v. 
Bank  (102  U.  S.  14),  in  the  United  States  Supreme  Court. 
The  railroad,  wishing  to  raise  money,  executed  a  promis- 
sory note  payable  to  its  treasurer,  who  indorsed  in  blank 
and  delivered  it  to  Hutchinson  &  Ingersoll,  note  brokers, 
for  the  purpose  of  having  the  instrument  sold  by  them  for 
the  benefit  of  the  railroad.  Hutchinson  &  Ingersoll  were 
indebted  to  the  bank,  and,  in  breach  of  trust,  delivered  the 
note  to  their  creditor,  the  bank,  which  took  it  in  good  faith 
as  security  for  the  debt  but  not  in  payment  thereof  nor 
under  an  agreement  not  to  sue.  The  bank  sued  the  railroad, 
which  set  up  as  a  defense  the  fraud  of  its  agents  in  pledg- 
ing the  note  for  their  personal  debt,  but  the  court  held  that 
the  bank  was  a  holder  for  value  and  could  recover.  Mr.  Jus- 
tice Harlan  in  his  opinion  said : 

"Our  conclusion,  therefore,  is  that  the  transfer  before 
maturity  o*f  negotiable  paper,  as  security  for  antecedent 
debt  merely,  without  other  circumstances,  if  the  paper  be 
so  indorsed  that  the  holder  becomes  a  party  to  the  instru- 
ment, although  the  paper  is  without  express  agreement  by 
the  creditor  for  indulgence,  is  not  an  improper  use  of  such 
paper,  and  is  as  much  in  the  usual  course  of  commercial 
business  as  its  transfer  in  payment  of  such  debt.  In  either 
case,  the  bona  fide  holder  is  unaffected  by  equities  or  de- 
fenses between  prior  parties,  of  which  he  had  no  notice. 
This  conclusion  is  abundantly  sustained  by  authority.  A 
different  determination  by  this  court  would,  we  apprehend, 
greatly  surprise  both  the  legal  profession  and  the  commer- 
cial world." 

Amount  of  value. — Section  82.  The  amount  of  value 
which  the  holder  pays  does  not  as  a  rule  affect  his  position 
as  a  holder  for  value.  One  who  exchanges  a  $50  horse  for 


n6       THE  LAW  OF  COMMERCIAL  PAPER 

a  $100  promissory  note  is  a  holder  for  value  of  the  note. 
The  same  would  be  true  though  the  horse  were  worth  only 
$25.  But  as  the  value  given  decreases,  the  inference  of  bad 
faith  and  knowledge  on  the  part  of  the  purchaser  increases. 
For  example,  in  De  Witt  v.  Perkins  (22  Wis.  473),  the 
plaintiff  paid  $5  for  a  $300  note  of  the  defendant  who  had 
been  defrauded  of  the  note  by  the  payee.  The  defendant 
was  solvent.  It  was  held  that  the  plaintiff  could  not 
recover.  The  transaction  showed  that  the  plaintiff  acted 
in  bad  faith,  and  had  notice  of  the  fraud  of  the  payee.  In 
Lay  v.  Wisman  (21  N.  J.  L.  665),  the  plaintiff  paid  $80 
for  a  $150  note  which  had  been  secured  from  the  maker 
by  fraud.  It  was  held  that  the  amount  of  value  paid 
did  not  disentitle  the  plaintiff  from  recovering  the  face 
value  of  the  note  from  the  maker.  The  Court  said : 

"It  is  an  elementary  principle  that  the  equities  existing 
between  the  maker  and  the  payee  cannot  be  set  up  against 
the  indorsee  in  the  ordinary  course  of  business,  for  a 
valuable  consideration,  in  good  faith,  and  before  maturity. 

"There  is  some  confusion  and  uncertainty  in  the  author- 
ities as  to  whether  one  who  purchases  a  note  for  less  than 
its  face  can  be  considered  a  bona  fide  holder.  Bailey  v. 
Smith,  14  Ohio  St.  396,  84  Am.  Doc.  385,  and  cases  cited. 
In  this  State,  however,  the  rule  is  settled  that  one  who 
purchases  a  note  at  a  discount  may  be  a  bona  fide  holder 
and  entitled  to  recover  thereon.  Sully  v.  Goldsmith,  32 
Iowa,  397.  And  this  view  has  the  support  of  both  prin- 
ciple and  authority.  Bailey  v.  Smith,  supra;  Gould  v.  Legee, 
5  Duer  (N.  Y.)  270.  The  amount  of  the  consideration  paid 
may  become  important  in  determining  whether  the  holder 
is  a  bona  fide  indorsee. 

"Where  a  note  for  $300,  on  a  responsible  person,  and 
nearly  due,  was  sold  for  $5,  it  was  held  that  the  indorsee 
was  not  a  holder  in  good  faith  for  value,  and  that  he  could 


HOLDER  IN  DUE  COURSE  117 

not  recover  thereon,  the  note  being  without  consideration. 
De  Witt  v.  Perkins,  22  Wis.  473.  The  amount  of  con- 
sideration paid  becomes  an  important  element,  in  connec- 
tion with  the  responsibility  of  the  maker,  the  rate  of 
interest,  the  time  of  maturity,  and  the  circumstance  of  the 
transfer  in  determining  the  bona  fides  of  the  holder.  And 
if  he  is  not  a  purchaser  in  good  faith,  he  takes  the  note 
subject  to  the  equities  growing  out  of  the  note,  existing 
between  the  maker  and  the  payee.  When,  however,  the 
consideration  paid,  and  the  other  circumstances  of  the  pur- 
chase, show  that  the  indorsee  is  a  bona  fide  holder,  in  the 
usual  course  of  business,  there  is  no  logical  principle  upon 
which  his  recovery  from  the  maker  can  be  reduced  below 
the  amount  of  the  note. 

"The  defense  that  a  note  has  been  obtained  fraudulently 
or  without  consideration  does  not  avail  against  a  bona  fide 
holder.  If,  however,  the  recovery  of  such  holder  may  be 
limited  to  the  amount  paid,  it  is  apparent  that  the  defense 
does  avail';  for  without  such  defense  he  would  recover  the 
amount  evidenced  by  the  note. 

"There  is  a  class  of  cases  in  which  the  holder  has  been 
allowed  to  recover  only  the  amount  advanced  upon  the  note. 
But  it  is  believed  that  they  will  nearly,  if  not  quite,  all 
be  found  to  be  cases  in  which  the  holder  is  not  a  purchaser 
in  the  ordinary  course  of  business.  Thus,  in  Allaire  v. 
Hartshorne,  21  N.  J.  Law,  665,  47  Am.  Doc.  175,  cited  in  i 
Parsons,  on  Bills  and  Notes,  p.  191,  note  I,  the  note  was 
deposited  with  the  holder  as  collateral  security  for  a  pre- 
existing debt.  The  plaintiff  was  the  owner  of  the  note 
only  to  the  extent  of  the  debt  secured.  If  he  had  recovered 
more,  he  would  have  held  the  surplus  in  trust  for  the  payee. 
But  the  payee  was  not  entitled  to  recover,  the  note,  as 
between  him  and  the  maker,  being  invalid.  Hence  it  was 
held,  and  very  properly,  that  the  holder  could  recover  only 
the  amount  of  his  debt." 


Ii8       THE  LAW  OF  COMMERCIAL  PAPER 

Notice  before  value  paid. — Section  83.  Although  we 
have  seen  that  a  purchaser  of  a  $100  negotiable  instrument 
for  $25  may  be  a  holder  in  due  course  and  recover  the  full 
face  value  of  the  paper,  if  a  holder  receives  notice  of  the 
maker's  defense  before  he  has  actually  paid  the  agreed  price1 
of  the  note,  he  is  not  a  holder  in  due  course.  It  is  not  only 
the  acquisition  of  the  instrument,  but  the  payment  of  value 
therefor,  which  entitles  a  holder  to  the  position  of  a  holder 
in  due  course.  So,  also,  one  who  has  paid  over  only  a  part 
of  the  agreed  price  before  notice  can  recover  from  the 
defrauded  maker  only  as  much  as  he  paid  before  receiving 
notice.  In  Dresser  v.  Construction  Co.  (93  U.  S.  92),  one 
Irwin  by  means  of  fraud  induced  the  Construction  Company 
to  make  and  deliver  to  him  as  payee  three  promissory  notes 
aggregating  $10,000.  Irwin  sold  and  indorsed  the  instru- 
ments to  the  plaintiff,  who  paid  $500  in  cash  and  promised 
to  pay  the  balance  of  the  purchase  price*.  Before 
he  had  done  so,  he  received  notice  of  the  maker's  defense. 
It  was  conceded  that  the  plaintiff  was  entitled  to  recover 
from  the  Construction  Company  the  $500  paid  before  notice, 
but  the  plaintiff  claimed  the  face  of  the  notes%  His  claim 
was  disallowed,  the  court  saying: 


"The  argument  of  the  plaintiff  in  error  is  that  negotiable 
paper  may  be  sold  for  such  sum  as  the  parties  may  agree 
upon,  and  that,  whether  such  sum  is  large  or  small,  the 
title  to  the  entire  paper  passes  to  the  purchaser.  This  is 
true;  and  if  the  plaintiff  had  bought  the  notes  in  suit  for 
$500,  before  maturity  and  without  notice  of  any  defense, 
and  had  paid  that  sum,  or  given  his  negotiable  note  there- 
for, the  authorities  cited  show  that  the  whole  interest  in 
the  notes  would  have  passed  to  him,  and  he  could  have 
recovered  the  full  amount  due  upon  them." 


HOLDER  IN  DUE  COURSE  119 

The  Negotiable  Instruments  Law,  §  54,  states  the  rule 
as  follows : 

"Where  the  transferee  received  notice  of  any  infirmity 
in  the  instrument  or  defect  in  the  title  of  the  person 
negotiating  the  same,  before  he  has  paid  the  full  amount 
agreed  to  be  paid  therefor,  he  will  be  deemed  a  holder  in 
due  course  only  to  the  extent  of  the  amount  theretofore 
paid  by  him." 

Transferee  of  holder  in  due  course. — Section  84.  If 
negotiable  paper  once  gets  into  the  hands  of  a  holder  in 
due  course  and  the  personal  or  equitable  defenses  of  the 
maker  are  cut  off,  then  a  transferee  who  obtains  title  to 
the  instrument  from  him  may  recover  upon  it,  even  though 
the  transferee  pays  nothing,  and  has  actual  knowledge  of 
the  maker's  defense,  or  takes  after  maturity  and  conse- 
quently with  constructive  notice.  Any  other  rule  would  de- 
prive the  holder  in  due  course  of  one  of  the  incidents  of 
ownership  in  negotiable  paper,  viz.,  the  right  to  dispose  of 
the  paper  by  sale  or  gift  to  whomever  he  chooses.  There 
is,  however,  an  exception  to  this  rule:  if  the  holder  in  due 
course  retransfers  the  instrument  to  the  guilty  payee  or  to 
anyone  who  participated  with  him  in  the  fraud  on  the 
maker,  he  may  not  recover.  The  rule,  the  exception  and  the 
reasons  are  well  stated  in  Kost  v.  Bender  (25  Mich.  515), 
as  follows :  "It  is  perfectly  true,  as  a  general  rule,  that  the 
bona  fide  holder  of  negotiable  paper  has  a  right  to  sell  the 
same,  with  all  the  rights  and  equities  attaching  to  it  in  his 
own  hands,  to  whomever  may  see  fit  to  buy  of  him,  whether 
such  purchaser  was  aware  of  the  original  infirmity  or  not. 
Without  this  right  he  would  not  have  the  full  protection 
which  the  Law  Merchant  designs  to  afford  him,  and  nego- 
tiable paper  would  cease  to  be  a  safe  and  reliable  medium 
for  the  exchange  of  commerce.  For,  if  one  can  stop  the 


120       THE  LAW  OF  COMMERCIAL  PAPER 

negotiability  of  paper  against  which  there  is  no  defense, 
by  giving  notice  that  a  defense  once  existed  while  it  was 
held  by  another,  it  is  obvious  that  an  important  element  in 
its  value  is  at  once  taken  away.  But  I  am  not  aware  that 
this  rule  has  ever  been  applied  to  a  purchase  by  the  original 
payee,  nor  can  I  perceive  that  it  is  essential  to  the  protec- 
tion of  the  innocent  indorsee,  that  it  should  be.  It  cannot 
be  very  important  to  him  that  there  is  one  person  incapable 
of  succeeding  to  his  equities,  and  who  consequently  would 
not  be  likely  to  become  a  purchaser.  If  he"  may  sell  to  all 
the  rest  of  the  community,  the  market  value  of  his  security 
is  not  likely  to  be  affected  by  the  circumstance  that  a  single 
individual  cannot  compete  for  its  purchase,  especially  when 
we  consider  that  the  nature  of  negotiable  securities  is  such 
that  their  market  value  is  very  little  influenced  by  competi- 
tion. Nor  do  I  perceive  that  any  rule  or  principle  of  law 
would  be  violated  by  permitting  the  maker  to  set  up  this 
defense  against  the  payee,  when  he  becomes  indorsee,  with 
the  same  effect  as  he  might  have  done  before  it  had  been 
sold  at  all,  or  that  there  is  any  valid  reason  against  it." 

Negotiable  Instruments  Law,  §  58,  provides : 

"In  the  hands  of  any  holder  other  than  a  holder  in  due 
course,  a  negotiable  instrument  is  subject  to  the  same  de- 
fenses as  if  it  were  non-negotiable.  But  a  holder  who  de- 
rives his  title  through  a  holder  in  due  course,  and  who  is 
not  himself  a  party  to  any  fraud,  duress,  or  illegality 
affecting  the  instrument,  has  all  the  rights  of  such  former 
holder  in  respect  to  all  parties  prior  to  such  holder." 


CHAPTER  VIII 

OBLIGATIONS  OF  PARTIES MAKER  AND  ACCEPTOR 

Promise  of  maker  and  acceptor. — Section  85.  When  a 
promissory  note  is  made  it  shows  on  its  face  the  maker's 
promise,  i.  e.,  the  contract  obligation  which  he  has  assumed 
by  making  the  instrument.  "On  Jan.  i,  1912,  I  promise  to 
pay  X  or  his  order,  $1,000,"  is,  when  signed,  a  complete 
note.  Various  additional  stipulations  for  interest,  for 
attorney's  fees,  etc.,  may  be  incorporated  in  the  instrument ; 
but  when  the  instrument  is  completed  it  shows  on  its  face 
the  obligation  of  the  maker.  The  Negotiable  Instruments 
l^w,  §  60,  says :  "The  maker  of  a  promissory  note  by 
making  it  engages  that  he  will  pay  it  according  to  its  tenor." 

The  drawee  of  a  bill  of  exchange  is  under  no  obligation 
until  he  accepts,  but  when  he  does  accept  and  thereby  be- 
comes liable  as  acceptor  his  obligation  as  such,  like  that  of 
a  maker  of  a  note,  appears  on  the  face  of  the  instrument. 

Jan.  i,  1910. 
Six  months  after  date  paS^t^Jfj^ford  or  order,  $100, 

To  John  Jones,  _  __       „  _         c 

JOHN  SMITH, 

Eau  Claire,  Wis.' 


In  the  above  instrument  the  words,  "Accepted,  John 
Jones,"  written  across  the  face  of  the  order  directing  him 
to  pay  six  months  after  date  $100  to  Crawford  or  his 
order,  are  an  express  assent  to  the  order,  and,  therefore, 
in  effect  a  promise  on  his  part  to  pay  Crawford  or  order 

121 


122       THE  LAW  OF  COMMERCIAL  PAPER 

$100  six  months  after  date.  The  acceptance  is  quite  as  clear 
as  if  Jones  had  written  at  the  bottom  of  the  bill  the  follow- 
ing: "I  promise  to  pay  Crawford  or  order  $100  six 
months  after  date  (Sgd.)  John  Jones."  If  Jones  gave  a 
qualified  acceptance,  for  example,  "Accepted,  payable  nine 
months  after  date  (Sgd.)  John  Jones,"  his  promise  would 
still  be  clear  from  the  face  of  the  paper:  "I  promise  to 
pay  as  directed  in  this  bill  of  exchange,  except  that  I  will 
pay  nine  instead  of  six  months  after  date  of  this  bill." 
In  other  words,  just  as  the  maker  of  a  note  engages  or 
promises  by  making  a  note  that  he  will  pay  it  according  to 
its  tenor  or  terms,  so  an  acceptor  if  he  accepts  generally, 
engages  that  he  will  pay  the  bill  according  to  the  tenor  or 
terms  of  the  order,  or  if  he  accepts  by  a  qualified  accept- 
ance, engages  that  he  will  pay  according  to  the  tenor  of  the 
bill  as  modified  by  the  terms  of  his  acceptance.  (See  Neg. 
Inst.  Law,  §  62.) 

Presentment  and  demand  of  payment  by  the  holder  not 
necessary  to  hold  the  maker  or  acceptor. — Section  86.  It 
is  clear  from  the  foregoing  that  the  obligation  of  the 
acceptor  is  the  same  as  the  obligation  of  the  maker  and 
that  both  may  be  considered  together.  One  of  the  first 
requisites  of  a  bill  or  note  is  that  it  shall  be  unconditional. 
The  acceptor  or  maker  must  be  absolutely  obliged  to  pay 
at  maturity  without  the  performance  of  any  act  by  the 
holder  or  anyone  else.  If  that  is  not  the  obligation  dis- 
closed on  the  face  of  the  paper,  the  instrument  is  not  a 
negotiable  instrument.  A  remarkable  rule  has  resulted 
from  an  unreasonable  application  of  this  principle.  It  is 
not  necessary  for  the  holder  of  a  negotiable  instrument  to 
present  the  paper  to  the  acceptor  or  maker  and  demand 
payment.  Thus,  in  the  case  of  a  note  dated  January  i  and 
payable  six  months  after  date,  it  is  the  duty  of  the  maker 
on  July  i  to  hunt  up  the  holder  and  pay  him.  If  he  does 


OBLIGATIONS  OF  PARTIES  123 

not  succeed  in  finding  the  holder  before  July  2,  then  the 
holder  may  begin  an  action  against  him  on  the  note  and  as 
an  incident  of  the  action  recover  the  legal  costs,  even 
though  the  maker  was  perfectly  ready,  willing,  and  anxious 
to  pay  the  note  when  due.  When  it  is  remembered  that  a 
negotiable  instrument  is  usually  transferred  from  one  holder 
to  another,  the  great  hardship  of  this  rule  is  apparent.  The 
hardship  is  ameliorated  in  actual  business  by  the  fact  that 
the  holder  of  a  note  generally  notifies  the  maker  where  the 
holder  or  his  agent  can  be  found,  more  usually  by  placing 
the  instrument  in  a  bank  for  collection,  which  as  agent  for 
the  holder  notifies  the  maker  that  the  bank  holds  his  note 
or  his  acceptance  for  payment.  This  practice  is,  however, 
purely  voluntary  on  the  part  of  the  holder  and  he  may,  if 
he  sees  fit,  wait  for  the  maker  to  come  to  him  on  the  day 
of  maturity,  and,  if  he  does  not  do  it,  bring  an  action  on 
the  following  day,  that  is,  as  soon  as  the  maker  is  in 
default. 

Not  even  in  case  of  demand  instruments. — Section  87. 
Even  if  a  note  is  expressly  made  payable  at  a  particular 
place,  as  "at  the  Commercial  Bank  of  Madison,"  or  "at 
my  office,  512  State  Street,  Madison,  Wis,,"  it  is  not  the 
duty  of  the  holder  to  present  the  paper  at  the  place  named 
in  the  note  and  to  demand  payment  there.  It  is  still  the 
duty  of  the  maker  to  find  the  holder,  whoever  he  is  and 
wherever  he  may  be,  and  tender  payment  to  him.  The 
same  rule  holds  good  with  respect  to  instruments  payable 
on  demand,  and  also  those  payable  at  sight,  for  by  §  7  of 
the  Negotiable  Instruments  Law,  instruments  payable  at 
sight  are  treated  as  payable  on  demand.  In  other  words,  an 
instrument  payable  on  demand  is  due  without  demand.  For 
example,  the  following  instrument  would  not  have  to  be 
presented  for  payment  by  the  holder,  notwithstanding  the 
italicized  words: 


124        THE  LAW  OF  COMMERCIAL  PAPER 

On  Demand  (or  at  sight)  I  promise  to  pay  X  or  order  $100 
at  the  Commercial  National  Bank  of  Madison. 

(Sgd.)  J.  JONES. 

The  rule  has  to  some  extent  been  modified  by  the 
Negotiable  Instruments  Law  as  adopted  in  most  states, 
which,  while  expressly  providing  that  presentment  is  not 
necessary,  does  provide  that  where  an  instrument  is  on 
its  face  payable  at  a  particular  place,  if  the  maker  is  able 
and  willing  to  pay  it  at  the  specified  place,  on  the  day  of 
maturity,  such  ability  and  willingness  shall  be  equivalent  to 
a  tender.  "Shall  be  equivalent  to  a  tender"  means  that 
ability  and  willingness  to  pay  at  the  place  specified  shall 
end  the  liability  of  the  maker  to  pay  interest  on  the  instru- 
ment, and  his  liability  to  pay  the  cost  of  an  action  at  law 
if  one  is  brought.  The  Statute  reads: 

"Presentment  for  payment  is  unnecessary  in  order  to 
charge  the  person  primarily  liable  (acceptor  or  maker)  on 
the  instrument.  But  if  the  instrument  is,  by  its  terms, 
payable  at  a  special  place,  and  he  is  willing  and  able  to  pay 
it  there  at  maturity,  such  ability  and  willingness  are  equiva- 
lent to  a  tender  of  payment  on  his  part." 

When  negotiable  instruments  mature. — Section  88.  The 
obligation  of  the  maker  or  acceptor  being  an  unconditional 
one  to  pay  at  maturity,  it  becomes  important  to  ascertain 
when  negotiable  instruments  mature.  According  to  the 
custom  of  merchants  and  the  rule  of  the  Common  Law 
adopted  from  the  custom,  instruments  payable  at  a  certain 
date,  or  at  sight,  were  entitled  to  three  days  of  grace.  A 
note  payable  on  July  I,  or  a  note  dated  January  i,  and 
payable  six  months  after  date,  would  be  due  and  payable 
July  4,  and  overdue  and  dishonored  on  July  5.  A  note 
payable  "at  sight"  was  due  the  third  day  after  the  day  of 


OBLIGATIONS  OF  PARTIES  125 

sight.  Instruments  payable  "on  demand,"  however,  were 
not  entitled  to  grace  but  were  due  without  demand  the 
moment  they  were  delivered.  Thus,  if  at  nine  o'clock  in 
the  morning  I  made  a  note  payable  to  you  on  demand, 
without  any  demand  whatever  you  could  bring  an  action 
against  me  on  the  note  at  ten  o'clock  the  same  morning. 
This  rule,  however,  is  so  manifestly  unjust  that  it  is  not 
applied  to  bank  notes  or  certificates  of  deposit  which  are 
promissory  notes  payable  on  demand.  (Shute  v.  Bank,  136 
Mass.  487.)  But  as  just  stated,  instruments  other  than 
demand  instruments  were  not  payable  until  the  third  day 
after  the  day  specified  in  the  instrument  for  payment. 

The  law  allowing  days  of  grace  has  been  abolished  by  the 
Negotiable  Instruments  Law,  in  §  85,  as  follows :  "Every 
negotiable  instrument  is  payable  at  the  time  fixed  therein 
without  grace.  When  the  day  of  maturity  falls  upon  a 
Sunday  or  a  holiday,  the  instrument  is  payable  on  the  next 
succeeding  business  day." 

The  result  of  this  section  and  of  the  section  making 
instruments  payable  "at  sight,"  payable  on  demand  (§7) 
is  a  very  simple  rule.  An  instrument  payable  on  July  I  is 
due  on  that  day;  one  payable  thirty  days  after  date  is  due 
on  the  thirtieth  day  after  date  of  the  instrument;  one 
payable  ten  days  after  the  death  of  my  father,  on  the  tenth 
day  after  my  father's  death;  one  payable  "on  demand," 
(except  bank  notes  and  certificates  of  deposit)  or  "at 
sight,"  is  due  forthwith,  that  is,  as  soon  as  it  is  delivered 
by  the  maker  to  the  payee. 

When  negotiable  instruments  become  overdue. — Sec- 
tion 89.  We  have  seen  that  the  obligation  of  the  maker  is 
an  unconditional  one  to  pay  on  the  day  of  maturity;  and 
we  have  seen  the  rule  for  determining  when  the  day  of 


126       THE  LAW  OF  COMMERCIAL  PAPER 

maturity  of  the  several  kinds  of  instruments  arrives.  We 
should  note  that  the  maker  or  acceptor  has  the  whole  of 
the  day  of  maturity,  that  is,  until  twelve  o'clock  midnight, 
to  pay.  This  means  that  he  has  not  broken  his  promise  to 
pay,  is  not  in  default,  until  the  beginning  of  the  day  after 
the  date  of  maturity,  when  the  instrument  is  said  to  be 
overdue  or  dishonored.  The  exact  moment  a  negotiable 
instrument  becomes  overdue  is  important  not  only  because 
it  marks  the  time  when  first  an  action  can  be  brought 
against  the  maker  or  acceptor,  but  because  it  marks  the  time 
after  which  no  one  can  become  a  holder  in  due  course.  (See 
Section  80,  Chapter  VII.)  With  respect  to  instruments 
payable  at  a  stated  future  time,  no  difficulty  can  arise;  but 
with  respect  to  instruments  payable  on  demand  there  is  a 
difficulty.  An  instrument  payable  "on  demand"  or  "at 
sight"  is  due  immediately  upon  its  delivery.  When  does  it 
become  overdue?  Immediately?  If  it  does  there  could 
scarcely  be  a  holder  in  due  course  of  a  demand  instrument. 
The  rule  is  that  a  demand  instrument  becomes  overdue 
after  the  elapsing  of  a  reasonable  time  after  its  delivery. 
The  Negotiable  Instruments  Law,  §  53,  says :  "Where  an 
instrument  payable  on  demand  is  negotiated  an  unreasonable 
length  of  time  after  its  issue,  the  holder  is  not  deemed  a 
holder  in  due  course." 


"In  determining  what  is  a  'reasonable  time*  or  an  'unrea- 
sonable time/  regard  is  to  be  had  to  the  nature  of  the  instru- 
ment, the  usage  of  trade  or  business  (if  any)  with  respect 
to  such  instruments,  and  the  facts  of  the  particular  case." 
(Neg.  Inst.  Law,  §  192.) 

It  is  impossible  to  give  any  more  definite  rule  for  d< 
termining  what  is  a  reasonable  time  after  which  a  demai 
instrument  is  overdue. 


OBLIGATIONS  OF  PARTIES  127 

OBLIGATIONS  OF  PARTIES — DRAWER  AND   INDORSEES 

Promise  of  drawer  and  indcrser. — Section  90.  Just  as 
the  obligation  of  the  acceptor  of  a  bill  and  the  maker  of 
a  note  are  identical,  so  the  obligation  assumed  by  the 
drawer  of  a  bill  and  the  obligation  assumed  by  the  indorser 
of  either  a  bill  or  a  note  are  identical.  But  the  obligation 
of  the  maker  or  acceptor  on  the  one  hand  is  very  different 
from  the  obligation  of  the  drawer  or  indorser  on  the  other. 
While  the  acceptor  or  maker  is  absolutely  and  uncondi- 
tionally bound  to  pay  the  instrument  at  maturity  without  a 
presentment  or  demand  of  payment  by  the  holder,  the 
drawer,  or  indorser  is  only  bound  to  pay  the  instrument 
upon  condition  that  the  instrument  is  duly  presented  to 
the  acceptor  or  maker,  is  dishonored  by  him,  and  that 
certain  steps,  called  proceedings  upon  dishonor,  are  taken 
by  the  holder. 

§  61  says :  §  66  says : 

"The  drawer  by  drawing  "Every  indorser  who  in- 
the  instrument  .  .  .  engages  dorses  without  qualifica- 
that  on  due  presentment  the  tion  .  .  .  engages  that  on 
instrument  will  be  accepted  due  presentment  it  shall  be 
or  paid,  or  both,  according  accepted  or  paid,  or  both, 
to  its  tenor,  and  that  if  it  be  as  the  case  may  be,  accord- 
dishonored,  and  the  neces-  ing  to  its  tenor,  and  that  if 
sary  proceedings  on  dis-  it  be  dishonored,  and  the 
honor  be  duly  taken,  he  will  necessary  proceedings  on 
pay  the  amount  thereof  to  dishonor  be  duly  taken,  he 
the  holder."  will  pay  the  amount  there- 
of to  the  holder." 

Presentment  for  acceptance  when  necessary. — Section 
91.  The  first  condition  which  the  holder  of  a  bill  or  note 
must  perform  in  order  to  hold  the  drawer  or  indorser 


128       THE  LAW  OF  COMMERCIAL  PAPER 

is  presentment,  that  is,  presentation  of  the  instrument  to 
the  acceptor  or  maker,  accompanied  by  a  demand  for  its 
payment.  The  presentment  may  be  either  at  maturity  for 
payment,  or  before  maturity  for  acceptance.  Obviously  a 
promissory  note  cannot  be  presented  for  acceptance.  But 
an  unaccepted  bill  may  be  presented  to  the  drawee  with  a 
request  for  his  acceptance.  In  only  a  few  cases  is  pre- 
sentment for  acceptance  required  by  law;  in  most  cases 
the  holder  may  wait  until  maturity  and  present  his  bill  for 
payment  to  the  drawee.  But  since  a  drawee  is  not  bound 
unless  he  accepts,  it  may  well  be  that  the  holder  will  want 
the  acceptance  of  the  drawee  to  give  credit  to  the  instru- 
ment during  the  period  it  is  to  run.  In  such  a  case  the 
holder  may  at  any  time  present  the  bill  to  the  drawee  and 
request  an  acceptance.  If  the  drawee  complies  with  the 
request,  the  drawee  becomes  an  acceptor  and  bound  as  such 
to  pay  the  instrument  at  its  maturity.  If  the  drawee  re- 
fuses to  accept,  then  the  bill  is  dishonored  and  the  holder 
has  a  right  (after  taking  the  regular  steps  required  in 
case  of  dishonor)  to  immediate  payment  from  the  drawer 
and  indorsers  of  the  bill.  Of  course,  he  has  no  remedy 
against  the  drawee  who,  as  we  have  seen,  is  never  bound 
unless  he  accepts.  For  example,  if  on  February  I,  1911, 
I  draw  a  bill  of  exchange  on  you  payable  February  i,  1912, 
in  favor  of  X  or  his  order,  X  need  not  present  the  instru- 
ment to  you  for  acceptance  at  all,  but  may  wait  until  its 
maturity  on  February  I,  1912,  and  present  the  instrument 
to  you  then  for  payment;  but  he  may  on  February  2,  1911, 
present  it  for  acceptance,  in  which  event  if  you  do  not 
accept,  he  may  (after  due  proceedings  on  dishonor)  imme- 
diately sue  -me,  the  drawer,  or  the  indorsers,  and  recover 
the  amount  of  the  bill  though  it  is  almost  a  year  before  the 
time  of  payment  specified  in  the  bill  will  arrive.  You,  the 
drawee,  are  under  no  liability  on  the  instrument.  The 
Negotiable  Instruments  Law,  §  150,  provides: 


OBLIGATIONS  OF  PARTIES  129 

"When  a  bill  is  dishonored  by  nonacceptance  an  imme- 
diate right  of  recourse  against  the  drawer  and  indorsers 
accrues  to  the  holder  and  no  presentment  for  payment  is 
necessary." 

Furthermore,  if  the  holder  sees  fit  .to  present  an  instru- 
ment for  acceptance,  and  it  is  not  accepted,  then  he  is  not 
permitted  to  wait  and  again  present  the  instrument  for  pay- 
ment at  maturity,  and  then  (after  due  proceedings  upon 
dishonor)  proceed  against  the  drawer  and  indorsers,  but 
he  must  immediately  upon  the  nonacceptance  take  the 
due  proceedings  upon  dishonor.  If  he  does  not  do  so,  the 
drawer  and  indorsers  are  discharged  from  liability  on  the 
instrument.  The  Negotiable  Instruments  Law,  §  149,  pro- 
vides: "When  a  bill  is  duly  presented  for  acceptance  and 
is  not  accepted  within  the  prescribed  time,  the  person  pre- 
senting it  must  treat  the  bill  as  dishonored  by  nonaccept- 
ance or  he  loses  the  right  of  recourse  against  the  drawer 
and  indorsers/'  In  other  words,  in  the  example  given 
above,  if  X,  the  holder,  sees  fit  to  exercise  the  option  the 
law  gives  him  to  present  the  bill  for  acceptance,  he  is 
bound  in  case  you  dishonor  it  by  nonacceptance  to  take 
the  proceedings  upon  dishonor  at  once,  or  I,  the  drawer, 
am  discharged. 

Up  to  this  point  we  have  been  considering  cases  where 
the  holder  was  not  bound  to  present  his  bill  for  accept- 
ance but  might  present  it  for  payment  to  the  drawee  for 
the  first  time  at  maturity.  There  are,  however,  certain 
kinds  of  bills  which  are  required  to  be  presented  for  accept- 
ance. The  Negotiable  Instruments  Law,  §  142,  enumerates 
them  as  follows : 

Presentment  for  acceptance  must  be  made: 


130       THE  LAW  OF  COMMERCIAL  PAPER 

i.  Where  the  bill  is  payable  after  sight,  or  in  any  other 
case  where  presentment  for  acceptance  is  necessary  in 
order  to  fix  the  maturity  of  the  instrument;  or 

2.  Where  the  bill  expressly  stipulates  that  it  shall  be  pre- 
sented for  acceptance ;  or 

3.  Where  the  bill  is  drawn  payable  elsewhere  than  at  the 
residence  or  place  of  business  of  the  drawee. 

In  no  other  case  is  presentment  for  acceptance  necessary 
in  order  to  render  any  party  to  the  bill  liable. 

Examples  of  bills  which  must  be  presented  for  acceptance 
under  subdivision  I  are  as  follows:  "Please  pay  ten  days 
after  sight,"  etc. ;  "Please  pay  ten  days  after  demand,"  etc. ; 
"Please  pay  ten  days  after  acceptance,"  etc.  An  example 
of  a  bill  governed  by  subdivision  2  is  the  following:  "Thirty 
days  after  date  please  pay,"  etc.,  with  the  added  stipulation, 
"this  bill  must  be  presented  for  acceptance,"  or  "Present- 
ment for  acceptance  required,"  or  "Acceptance  required" ; 
or  perhaps  the  words,  "With  acceptance,"  would  be  suf- 
ficient to  bring  the  instrument  within  subdivision  2.  An 
example  of  a  bill  within  subdivision  3  is  one  drawn  on  me, 
a  resident  of  Madison,  payable  in  New  York. 

Jan.  i,  1911. 

Thirty  days  after  date  pay  to  X  or  order  $100  at  the  Han- 
over National  Bank  of  New  York  City. 

(Sgd.)   J.  JONES. 
To  W.  U.  MOORE, 

University  of  Wisconsin, 
Madison,  Wis. 

Now  that  we  have  determined  what  bills  may  be,  and 
what  bills  must  be,  presented  for  acceptance,  we  must  notice 
what  bills  -may  not  be  presented  for  acceptance.  Bills  pay- 
able "on  demand,"  and  bills  payable  "at  sight"  after  the 
Negotiable  Instruments  Law  (§7),  which  makes  then? 
payable  on  demand,  are  such,  and  since  they  are  payable 


OBLIGATIONS  OF  PARTIES  131 

as  soon  as  presented,  cannot  be  presented  for  acceptance. 
If  they  are  not  paid  when  presented  they  are  dishonored 
and  unless  the  holder  at  once  takes  the  regular  proceedings 
on  dishonor  the  drawer  and  indorsers  are  discharged.  If 
such  bills  are  accepted  in  form,  the  drawee  becomes,  not 
the  acceptor  of  a  bill,  but  in  effect  the  maker  of  a  promis- 
sory note  payable  to  the  holder.  The  drawer  and  indorsers 
are  discharged. 

Presentment  for  acceptance — day. — Section  92.  The 
next  question  is,  when  must  a  bill  be  presented  for  accept- 
ance? In  the  case  of  bills  payable  at  a  stated  time,  which 
need  not  be  presented  for  acceptance  at  all,  presentment  for 
acceptance  may  be  made  to  the  drawee  any  time  before  the 
instrument  is  overdue,  that  is,  any  time  before  or  during 
the  day  of  maturity.  Since  a  bill  payable  at  a  stated  future 
time  must,  whether  accepted  or  not,  be  presented  for  pay- 
ment at  maturity,  as  we  shall  see,  it  would  be  absurd  in 
most  cases  for  the  holder  to  present  it  for  acceptance  in 
the  morning  of  the  day  of  maturity  and  to  present  it  for 
payment  in  the  afternoon,  but  the  holder  may  do  so  if  he 
chooses. 

The  rule  with  respect  to  instruments  which  are  required 
to  be  presented  for  acceptance  is  different.  "The  holder  of 
a  bill  which  is  required  ...  to  be  presented  for  accept- 
ance must  either  present  it  for  acceptance  or  negotiate  it 
within  a  reasonable  time.  If  he  fail  to  do  so,  the  drawer 
and  all  indorsers  are  discharged."  (Neg.  Inst.  Law,  §  143.) 
What  is  a  reasonable  time  within  which  to  present  for 
acceptance  or  to  transfer  cannot  be  defined.  It  is  a  question 
to  be  decided  in  each  case  as  provided  in  §  192,  Negotiable 
Instruments  Law,  in  view  of  the  business  usage  of  the 
community.  Bigelow  ("Bills  and  Notes,"  pp.  113-115)  dis- 
cusses the  question  as  follows : 


132       THE  LAW  OF  COMMERCIAL  PAPER 

"The  Law  Merchant  requires  presentment  of  such  paper 
within  a  reasonable  time ;  but  that  rule  is  interpreted  to  per- 
mit the  circulation  of  such  paper  indefinitely  before  present- 
ment, so  that  the  Statute  of  Limitations  does  not  run 
out.  That  is  to  say,  the  contract  of  the  drawer  and  in- 
dorsers  of  a  bill  is  that  the  holder  may  present  the  bill  at 
any  time  within  the  period  of  the  Statute  of  Limitations 
provided  the  paper  is  kept  in  circulation  meantime;  when 
finally  presentment  for  acceptance  is  made,  the  taking  of 
the  other  steps  required  in  cases  of  dishonor  will  accord- 
ingly fix  liability.  For  example,  a  sight  bill  is  sent  from 
Chicago  to  a  distant  territory  on  the  day  of  its  date.  After 
some  detention  in  the  mails  it  reaches  its  destination,  when 
the  holder  puts  it  into  circulation  at  the  first  opportunity, 
and  it  is  then  kept  in  circulation  as  well  as  the  thinly  settled 
condition  of  the  territory  permitted.  Without  unnecessary 
delay  it  is  presented  to  the  drawee  thirty-five  days  after  its 
date.  The  presentment  is  good.  Again:  The  defendant 
in  London  indorses  to  the  plaintiff  a  bill  of  exchange  drawn 
in  London  on  A  at  Calcutta,  payable  to  order  sixty  days 
after  sight  The  bill  is  dated  March  5.  On  May  22  next 
the  bill  is  sent  to  India  and  received  there  early  in  October ; 
shortly  afterward  it  is  presented  for  acceptance,  and  accept- 
ance is  refused;  due  protest  and  due  notice  of  dishonor 
follow.  It  is  for  the  jury  to  say  whether  the  bill  was  pre- 
sented to  the  drawee  in  reasonable  time,  the  fact  that  the 
paper  was  kept  out  in  circulation  for  so  long  a  time  not 
being  in  itself  unreasonable. 

"The  bill  should,  however,  be  kept  in  circulation,  as  far 
as  circumstances  reasonably  permit,  or  it  should  be  pre- 
sented for  acceptance;  it  should  not  be  locked  up.  To  lock 
it  up,  which  means  to  hold  it  when  it  might  reasonably  be 
passed  on  in  circulation  or  sent  forward  for  presentment, 
would  discharge  the  drawer  and  indorsers.  What  is  a 
reasonable  holding,  and  hence  not  a  locking  up,  must  de- 


OBLIGATIONS  OF  PARTIES  133 

pend  upon  circumstances,  as  the  examples  above  given 
show.  In  cases  lying  on  the  border,  the  question  of  rea- 
sonableness must  ordinarily  be  left  to  the  jury;  in  clear 
cases  the  Court  will  rule  on  the  facts.  The  Court  would 
rule  that  to  keep  a  bill  an  entire  day  could  not  be  unrea- 
sonable; it  has  been  ruled  that  to  hold  an  inland  bill  after 
sight  in  London  until  the  fourth  day  after  receiving  it, 
within  twenty  miles  of  London,  is  not  unreasonable. 

"The  rule,  indeed,  is  not  a  hard  and  fast  one.  It  may 
be  entirely  changed  by  custom;  if  there  be  clear  and  de- 
terminate usage  of  trade  at  the  place  of  payment,  which 
regulates  the  time  of  presentment,  that  usage  is  considered 
as  entering  into  the  contract  of  the  drawer  and  indorsers, 
and  presentment  must  be  made  accordingly." 

Presentment  for  acceptance — mode  of  making — when 
excused — summary. — Section  93.  The  rules  with  respect 
to  the  mode  or  manner  of  making  a  presentment  for  accept- 
ance are  stated  in  §§  144  and  145.  Under  what  cir- 
cumstances presentment  for  acceptance  of  instruments  re- 
quired to  be  so  presented  is  excused,  is  stated  in  §  146. 

The  rules  we  have  been  discussing  have  been  well  sum- 
marized in  Bigelow,  Bills  and  Notes,  pp.  80,  81,  82: 

"A  bill  of  exchange  payable  at  a  stated  time  after  date 
need  not  be  presented  for  acceptance.  However,  according 
to  the  better  doctrine  of  the  Law  Merchant,  the  drawer's 
contract,  in  the  case  of  a  bill  of  exchange,  looks,  in  all 
cases  in  which  the  bill  is  not  payable  on  demand,  to  an 
acceptance  as  well  as  to  payment  by  the  drawee.  That  is, 
the  drawer  is  understood  to  engage  in  favor  of  the  payee, 
or  subsequent  holder,  that  the  drawee  will  give  him  at 
any  time  the  special  security  of  acceptance,  which  of  course, 
in  the  case  of  paper  payable  after  date  or  a  stated  time 


134       THE  LAW  OF  COMMERCIAL  PAPER 

after  sight,  may  be  long  before  the  maturity  of  the  bill, 
and  thus  be  a  matter  of  great  importance. 

"That  undertaking  of  the  drawer  may  be  broken  by  the 
refusal  of  the  drawee  to  accept  the  bill;  there  being  then 
upon  due  notice  (which  the  law  requires),  a  breach  of  con- 
tract on  the  part  of  the  drawer,  he  is  in  principle,  and  by 
the  current  of  authority,  liable  on  the  bill  at  once,  regard- 
less of  the  fact  that  payment  of  the  bill  by  the  drawee  may 
not  be  required  by  the  order  for  a  long  time  thereafter. 
For  example :  A  draws  a  bill  of  exchange  on  B  in  favor  of 
C,  dated  January  I,  1893,  payable  three  months  after  date. 
On  January  2,  1893,  C  presents  the  bill  to  B  for  acceptance, 
and  acceptance  is  refused ;  the  paper  is  duly  protested,  and 
A  is  duly  notified.  A  is  liable  on  the  bill  at  once;  C  need 
not  wait  until  the  time  stated  in  the  bill  before  suing. 

"The  real  meaning,  then,  of  the  drawer's  contract,  in 
the  eye  of  the  Law  Merchant,  is  that  the  holder  shall  have 
the  drawee's  acceptance  if  he  desires  it,  which  being  given, 
he  shall  then  have  payment  by  the  drawee  at  the  stated 
time;  but  that,  if  the  drawee  refuses  acceptance  (or  pay- 
ment), the  sum  shall  be  due  at  once  from  the  drawer; 
though  it  must  be  remembered  that  it  is  part  of  the  drawer's 
contract,  in  ordinary  cases,  that  all  steps  necessary  to  liabil- 
ity in  other  cases  shall  be  taken,  whether  on  nonacceptance 
or  nonpayment  after  acceptance.  Indeed,  though  present- 
ment for  acceptance  may  be  unnecessary,  yet  if  asked  for 
and  refused  the  usual  steps  are  required  on  pain  of  dis- 
charging the  drawer,  and  not  merely  for  the  purpose  of 
fixing  his  liability. 

"All  this,  it  must  be  understood,  is  applicable  to  paper 
payable  ...  at  a  stated  time  after  sight,  as  well  as  to 
paper  payable  at,  or  at  a  stated  time  after  date,  save  that 
presentment  for  acceptance  in  the  former  case  is  necessary. 
And,  as  has  already  been  intimated,  if  there  happen  to  be 
an  indorsement  upon  the  paper,  the  indorser  also  may  be 


OBLIGATIONS  OF  PARTIES  135 

made  liable  and  sued  at  once;  for  his  contract,  as  well  as 
that  of  the  drawer,  is  broken.  .  .  . 

"The  Statute  deals  with  presentment  for  acceptance  thus  : 
Such  presentment  must  be  made  (i)  where  the  bill  is 
payable  after  sight,  or  in  any  other  case  where  presentment 
for  acceptance  is  necessary  to  fix  the  maturity  of  the 
instrument;  (2)  where  the  bill  expressly  stipulates  for  such 
presentment;  or  (3)  where  the  bill  is  drawn  payable  else- 
where than  at  the  residence  or  place  of  business  of  the 
drawee.  In  no  other  case  is  presentment  for  acceptance 
necessary  to  make  any  party  to  the  bill  liable. 

"Except  as  otherwise  provided  by  the  Statutes,  the  holder 
of  a  bill  required  as  just  stated  to  be  presented  for 
acceptance  must  present  it  for  acceptance  or  negotiate  it 
within  reasonable  time;  failing  which,  the  drawer  and  all 
the  indorsers  are  discharged. 

"Presentment '  for  acceptance  must  be  made  at  a  rea- 
sonable hour,  on  a  business  day,  and  before  the  bill  is 
overdue,  to  the  drawee  or  someone  authorized  to  accept 
or  refuse  acceptance  on  his  behalf.  If  addressed  to  two  or 
more  not  partners,  the  bill  must  be  presented  for  acceptance 
to  all  of  them,  unless  one  is  authorized  to  act  for  the  rest, 
when  presentment  to  him  alone  will  suffice.  Where  the 
drawee  is  dead,  presentment  may  be  made  to  his  personal 
representative.  If  the  drawee  has  been  adjudged  bankrupt 
or  insolvent,  or  has  made  an  assignment  for  creditors, 
presentment  may  be  made  to  him  or  to  his  trustee  or 
assignee. 

"A  bill  may  be  presented  for  acceptance  at  any  time 
when  a  negotiable  instrument  may  be  presented  for  pay- 
ment. .  ,  . 

"A  bill  is  dishonored  by  nonacceptance  (i)  when  duly 
presented  for  acceptance,  such  acceptance  as  the  Statute 
requires  is  refused  or  cannot  be  obtained;  or  (2)  where 


136       THE  LAW  OF  COMMERCIAL  PAPER 

presentment  for  acceptance  is  excused  and  the  bill  is  not 
accepted. 

"If  a  bill  duly  presented  for  acceptance  is  not  accepted 
within  the  time  prescribed,  the  person  presenting  it  must 
treat  the  bill  as  dishonored  or  lose  his  right  of  recourse 
against  the  drawer  or  indorsers.  If  the  bill  is  dishonored 
by  nonacceptance,  immediate  recourse  may  be  had  against 
the  drawer  and  indorsers,  and  no  presentment  for  payment 
is  necessary." 

Presentment  for  payment — day. — Section  94.  Every  bill 
of  exchange  and  every  promissory  note  must  be  presented 
for  payment  in  order  to  make  the  drawee  and  indorsers 
liable.  §  70  provides : 

"Presentment  for  payment  is  not  necessary  in  order  to 
charge  the  person  primarily  liable  on  the  instrument.  But 
except  as  herein  otherwise  provided,  presentment  for  pay- 
ment is  necessary  in  order  to  charge  the  drawer  and  in- 
dorsers." 

On  what  day  must  presentment  for  payment  be  made? 

—Presentment  for  payment  of  a  bill  or  note  payable  at  a 
stated  future  time,  as  "on  Feb.  I,  1912,"  or  "one  year 
after  date,"  must  be  made  on  the  day  of  maturity.  (See 
Section  88,  this  Chapter.)  There  is  an  exception  to  this 
rule  in  case  the  day  of  maturity  falls  on  Sunday  or  a 
holiday,  in  which  event  the  presentment  for  payment  may 
be  made  on  the  next  succeeding  business  day.  Negotiable 
Instrument  Law,  §  193,  provides : 

"Where  the  day,  or  last  day,  for  doing  any  act  herein 
required  or  permitted  to  be  done  falls  on  Sunday  or  on  a 
holiday,  the  act  may  be  done  in  the  next  succeeding  secular 
or  business  day." 


OBLIGATIONS  OF  PARTIES  137 

In  case  an  instrument  governed  by  §  142-1,  payable  "10 
days  after  sight,"  uio  days  after  demand,"  or  "10  days 
after  acceptance,"  is  accepted,  it  falls  due  and  must  be 
presented  for  payment  on  the  tenth  day  after  the  day  of  its 
acceptance.  Such  an  instrument  presented  for  acceptance 
on  January  I,  would  be  payable  on  January  n,  unless  that 
day  was  a  Sunday  or  holiday,  when  it  would  be  payable 
the  following  day  under  the  section  just  quoted.  Such 
instruments  as  we  are  discussing  are  instruments  which 
are  required  to  be  presented  for  acceptance  and  if  acceptance 
is  refused  they  are  immediately  dishonored  and  the  pro- 
ceedings upon  dishonor  must  be  taken  immediately  in  order 
to  hold  the  drawer  or  indorsers.  This  means,  of  course, 
that  such  instruments,  if  not  accepted,  can  never  be  pre- 
sented for  payment.  It  is  only  necessary,  then,  to  discuss 
as  we  have  done  when  such  instruments  after  they  have 
been  accepted  must  be  presented  for  payment. 

Instruments  payable  at  a  stated  future  time  which  are 
governed  by  §§  144  and  145  present  a  difficulty.  For  ex- 
ample, suppose  that  on  January  I,  I  deliver  to  X  in  Madison, 
Wis.,  the  following  bill  of  exchange  drawn  on  J.  Jones 
who  resides  and  has  his  place  of  business  in  New  York 
City. 

Jan.  i,  1911. 

Three  days  after  date  pay  to  X  or  order  $100  at  the  First 
National  Bank  of  St.  Paul,  Minn. 

W.  U.  MOORE. 
To  J.  JONES, 
1 20  Broadway, 
New  York  City. 

Such  an  instrument  under  subdivision  3  would  have  to 
be  presented  for  acceptance  to  Jones  in  New  York  City. 
But  how  would  it  be  possible  to  present  the  instrument  in 


138       THE  LAW  OF  COMMERCIAL  PAPER 

New  York  for  acceptance  and  get  the  instrument  to  St.  Paul 
in  time  to  present  it  for  payment  on  January  4,  the  day  of 
its  maturity?  Such  a  case  is  provided  for  in  Negotiable 
Instruments  Law,  §  146. 

"Where  the  holder  of  a  bill  drawn  payable  elsewhere  than 
at  the  place  of  business  or  the  residence  of  the  drawee  has 
not  time  with  the  exercise  of  reasonable  diligence  to  present 
the  bill  for  acceptance  before  presenting  it  for  payment  on 
the  day  that  it  falls  due,  the  delay  caused  by  presenting 
the  bill  for  acceptance  before  presenting  it  for  payment  is 
excused  and  does  not  discharge  the  drawer  and  indorsers." 

When  must  instruments  payable  on  demand  (or  at  sight) 
be  presented  for  payment?  We  have  seen  that  they  are  due 
and,  therefore,  may  be  presented  on  the  day  of  issue  or 
delivery;  and  that  they  are  overdue  after  a  reasonable 
time.  But  these  rules  do  not  supply  an  answer  to  the 
question.  Negotiable  Instruments  Law,  §  71,  gives  the  fol- 
lowing answer:  If  the  instrument  is  a  promissory  note  it 
must  be  presented  within  a  reasonable  time  after  its  issue 
or  delivery  by  the  maker,  or  the  indorsers  will  be  dis- 
charged. If  the  instrument  is  a  bill  of  exchange  the  pre- 
sentment for  payment  will  be  in  time  if  it  is  within  a 
reasonable  time  after  the  last  negotiation  or  transfer  of 
bill,  provided  the  instrument  has  been  kept  in  circulation 
and  not  "locked  up"  during  the  time  elapsing  between  its 
issue  and  the  presentment.  In  a  recent  Wisconsin  case  (134 
Wis.  218),  the  court  thus  construed  §  71 : 

"From  the  foregoing  it  seems  plain  that  as  regards  the 
payee  of  such  an  instrument  as  we  have  here,  who  puts 
the  same  in  circulation  with  his  unqualified  indorsement 
thereon,  and  all  subsequent  parties  thereto  so  indorsing  the 
same,  presentment  for  payment  is  sufficient,  as  regards 


OBLIGATIONS  OF  PARTIES  139 

their  liability,  if  made  within  a  reasonable  time  after  the 
last  negotiation.  A  bill  of  exchange  payable  on  demand, 
regardless  of  its  character,  put  in  circulation,  as  long  as  its 
circulating  character  is  preserved  may  be  outstanding  with- 
out impairing  the  liability  of  indorsers  thereof.  Formerly 
the  length  of  time  within  which  a  bill  of  exchange  might 
circulate  without  impairing  such  liability  was  more  or  less 
uncertain,  rendering  it  very  difficult  to  determine  any  one 
case  by  the  decision  in  another.  That  difficulty  was  re- 
moved, so  far  as  practicable,  by  the  provision  that  only 
the  time  need  be  considered  intervening  between  the  last 
negotiation  and  the  presentment.  That  is  recognized  as  a 
radical  change  in  the  law  as  it  formerly  existed.  Selover, 
Negotiable  Instruments  Law,  §  195,  reads : 

"  'As  to  an  ordinary  bill  of  exchange  put  in  circulation,  it 
was  quite  anciently  held  that  the  period  between  July  i8th 
of  one  year  and  Jan.  i6th  of  the  next  year  was  not  neces- 
sarily unreasonable.  Gowan  v.  Jackson,  20  Johns  (N.  Y.) 
176.  Perhaps  one  might  now  keep  a  bill  of  exchange  for 
such  length  of  time  as  to  destroy  its  circulating  character 
notwithstanding  he  ultimately  passed  it  along  to  another 
person,  but  that  situation,  as  we  view  the  case,  does  not 
exist  here/  " 

Suppose  an  instrument  payable  at  a  fixed  time,  as  ten 
days  after  date,  is  negotiated  to  X  after  it  is  due,  that  is 
more  than  ten  days  after  its  date.  Obviously  such  an 
instrument  cannot  be  presented  for  payment  on  the  day 
of  maturity.  Has  X  no  rights  on  the  instrument?  Yes, 
against  the  acceptor  or  maker,  for  no  presentment  at  all  is 
necessary  to  charge  them.  But  has  he  no  rights  against  the 
drawer  and  indorsers?  No,  not  against  the  drawer  and 
indorsers  who  indorsed  before  maturity.  But  has  he  no 
rights  against  the  man  who  indorses  to  him  after  maturity  ? 


140       THE  LAW  OF  COMMERCIAL  PAPER 

Is  that  indorser  discharged?  If  he  is,  why  should  he  be? 
Can  not  a  negotiable  instrument  be  transferred  after  it  is 
due?  To  be  sure,  a  purchaser  after  maturity  holds  the 
instrument  subject  to  the  defenses  which  the_maker  has ; 
but  does  it  not  continue  transferable  alter  maturity?  And 
if  it  does,  why  should  one  who  transfers  it  by  indorse- 
ment after  maturity  escape  from  liability  as  indorser,  be- 
cause his  transferee,  the  holder,  could  not  in  the  nature 
of  things  present  the  instrument  for  payment  at  maturity? 
There  is  only  one  answer  to  these  questions:  One  who  in- 
dorses after  maturity  should  be  held  as  indorser  provided 
the  instrument  is  presented  for  payment.  But  when  shall 
it  be  presented  for  payment?  The  rule  is,  it  must  be 
presented  within  a  reasonable  time  after  the  indorsement. 
This  is  the  rule  of  the  Negotiable  Instruments  Law,  §  7, 
subdivision  2,  which  provides : 

"Where  an  instrument  is  issued,  accepted,  or  indorsed, 
when  overdue,  it  is,  as  regards  the  person  so  issuing,  accept- 
ing, or  indorsing  it,  payable  on  demand." 

It  should  be  noticed  that  the  section  affects  only  the 
liability  of  parties  who  sign  after  maturity.  The  indorsers 
who  indorsed  before  maturity  are  discharged  once  and  for 
all  if  the  instrument  is  not  presented  at  maturity,  or  within 
a  reasonable  time,  as  the  case  may  be.  Further,  the  section 
applies  to  demand  instruments.  For  example,  if  a  demand 
note  is  not  presented  within  a  reasonable  period  after  its 
issue  (i)  it  is  overdue,  and  (2)  the  indorsers  are  dis- 
charged. If,  however,  the  note  is  indorsed  after  it  is  over- 
due, such  indorser  is  liable  if  the  instrument  is  presented 
within  a  reasonable  time  after  his  indorsement 


CHAPTER  IX 

OBLIGATIONS  OF  PARTIES — DRAWER  AND  INDORSERS 

(Continued) 

Presentment  for  payment — place. — Section  95.  Nego- 
tiable Instruments  Law,  §  73,  states  the  pfece  where  the 
presentment  for  payment  must  be  made : 

Presentment  for  payment  is  made  at  the  proper  place : 

1.  Where  a  place  of  payment  is  specified  in  the  instru- 
ment and  it  is  there  presented; 

2.  Where  no  place  of  payment  is  specified,  but  the  address 
of  the  person  to  make  payment  is  given  in  the  instrument 
and  it  is  there  presented; 

3.  Where   no    place   of   payment   is    specified,    and    no 
address  is  given  and  the  instrument  is  presented  at  the 
usual  place  of  business  or  residence  of  the  person  to  make 
payment ; 

4.  In  any  other  case  if  presented  to  the  person  to  make 
payment  wherever  he  can  be  found,  or  if  presented  at  his 
last  known  place  of  business  or  residence. 

The  section,  although  divided  into  four  subdivisions, 
really  provides  for  two  cases :  ( I )  where  the  place  for  pre- 
sentment is  designated  on  the  face  of  the  paper;  (2)  where 
it  does  not  so  appear. 

If  the  maker  or  drawer  in  the  body  of  the  instrument, 
or  the  acceptor  in  his  acceptance,  especially  provides  where 

141 


142       THE  LAW  OF  COMMERCIAL  PAPER 

the  instrument  is  payable,  as  "payable  at  Commercial  Na- 
tional Bank,  Madison,  Wis.,"  or  "payable  at  512  State  St., 
Madison,  Wis.,"  or  simply  "payable  at  Madison,  Wis.," 
presentment  for  payment  must  be  made  at  the  place  speci- 
fied in  order  to  charge  the  drawer  and  indorsers.  The 
addition  of  an  address  to  his  signature  by  the  maker  of  a 
note,  or  the  acceptor  of  a  bill  or  the  affixing  of  an  address 
to  the  drawee's  name,  has  the  same  effect  as  expressly 
making  the  instrument  payable  at  the  address  given.  The 
instrument  must  be  presented  at  that  place.  Wrhere  the 
place  specified  is  a  bank,  office,  or  any  other  place  of  busi- 
ness, or  a  residence,  no  difficulty  arises  in  applying  the 
rule.  But  how  shall  presentment  be  made  where  the  place 
named  is  a  town  or  a  city,  as  Madison,  Wis.,  or  New  York 
City?  In  such  a  case  the  instrument  must  be  presented 
either  at  the  residence  or  at  the  place  of  business  of  the 
maker  or  acceptor  in  the  city  named  if  he  has  either 
there,  and  if  the  existence  and  location  of  either  may  be 
ascertained  by  the  holder  after  diligent  inquiry.  If  he  has 
neither  in  the  city  named,  or  neither  is  ascertained  after 
diligent  inquiry,  the  presentment  is  sufficient  if  the  holder 
or  his  agent  is  present  with  the  instrument  anywhere  in 
the  city  named.  The  usual  way  of  making  presentment  of 
this  kind  of  instrument  is  to  send  it  for  collection  to  a 
bank  doing  business  in  the  city  or  town  designated  as  the 
place  of  payment.  If  the  bank  cannot  ascertain  the  maker's 
or  acceptor's  place  of  business  or  residence,  the  mere  pres- 
ence of  the  instrument  in  the  bank  on  the  day  of  maturity, 
is  a  sufficient  presentment. 

If  a  place  of  payment  has  not  been  specified  in  the 
instrument,  in  either  of  the  modes  described  in  the  pre- 
ceding paragraph,  then  the  presentment  must  be  made  at 
the  residence  or  place  of  business  of  the  maker  or  acceptor 
however  remote  and  no  matter  how  inconvenient  the 


OBLIGATIONS  OF  PARTIES  143 

making  of  the  presentment  may  be.  For  example,  a  note 
made  in  Wisconsin  by  a  traveler  from  Italy  payable  to 
a  resident  of  Wisconsin,  would,  if  no  place  of  payment 
were  specified  in  the  instrument,  be  payable  at  the  residence 
or  place  of  business  of  the  maker  in  Italy.  This  fact 
accounts  for  the  practice  of  expressly  making  negotiable 
instruments  payable  at  a  particular  place. 

If  an  instrument  on  its  face  names  no  place  of  payment 
and  the  maker's  or  acceptor's  place  of  business  cannot  be 
ascertained  after  diligent  inquiry,  then  presentment  must 
be  made  to  the  maker  or  acceptor  personally  wherever  he 
can  be  found,  or  at  his  last  known  place  of  business  or 
residence.  If,  however,  he  cannot  be  found  after  diligent 
inquiry,  and  no  residence  or  place  of  business  can  be  found 
where  he  has  lived  or  transacted  business,  then  presentment 
for  payment  is  dispensed  with  and  the  drawer  and  indorsers 
are  liable  without  presentment. 

The  statutory  rules  give  no  alternatives  to  the  holder  as 
to  the  place  of  making  presentment.  If  a  place  of  payment 
is  specified  in  the  instrument,  a  presentment  to  the  maker 
or  acceptor  personally  elsewhere,  or  at  his  actual  place  of 
business  or  residence  at  some  other  town,  is  of  no  avail.  If 
no  place  is  specified,  but  the  maker  or  acceptor  has  a  known 
place  of  business  or  residence,  a  personal  presentment  else- 
where is  insufficient. 

Presentment  for  payment — hour. — Section  96.  Not  only 
must  presentment  be  made  on  the  proper  day  and  at  the 
proper  place,  but  it  must  be  at  a  reasonable  hour.  Instru- 
ments payable  at  a  bank  must  be  presented  during  banking 
hours,  that  is,  during  the  hours  the  bank  is  regularly  open 
for  the  transaction  of  its  business.  There  is  an  exception 
to  this  rule,  where  the  maker  or  acceptor  has  no  money 


144       THE  LAW  OF  COMMERCIAL  PAPER 

in  the  bank  applicable  to  the  payment  of  the  instrument  if 
presented.  In  such  a  case  the  presentment  will  be  sufficient 
if  made  at  any  time  on  the  day  of  maturity,  when  admission 
may  be  gained  to  the  bank  and  an  officer  or  clerk  is  found 
present  who  is  authorized  to  give  an  answer  with  respect 
to  the  payment  of  the  bill.  Negotiable  Instruments  Law, 
§  75,  states  the  rule  and  exception  as  follows : 

"Where  the  instrument  is  payable  at  a  bank,  presentment 
for  payment  must  be  made  during  banking  hours,  unless 
the  person  to  make  payment  has  no  funds  there  to  meet 
it  at  any  time  during  the  day,  in  which  case  presentment 
at  any  hour  before  the  bank  is  closed  on  that  day  is  suf- 
ficient." 

When  an  instrument  must  be  presented  for  payment  at  a 
place  of  business,  it  must  be  presented  during  the  customary 
hours  of  business  in  the  community  where  the  place  of 
business  is  situated.  Presentment  either  before  or  after 
these  hours  would  be  ineffectual  even  though  the  office  were 
found  open. 

Instruments  which  must  be  presented  at  the  maker's  or 
acceptor's  residence  must  be  presented  at  a  reasonable  hour. 
But  what  is  a  reasonable  hour?  Bigelow  ("Bills  and 
Notes,"  pp.  121-123)  says: 

"It  is  common  to  say  in  cases  of  the  kind  that  present- 
ment may  be  made  at  any  time  of  day  between  morning 
and  night.  But  when  does  'morning*  begin,  and  when 
does  'night'  end  within  the  meaning  of  the  statement?  It 
would  be  unreasonable  to  say  that  presentment  might  be 
made  at  any  time  between  the  beginning  of  day  and  mid- 
night, and  the  law  does  not  say  so. 

"Payment  should  be  called   for  only  when,  so   far  as 


OBLIGATIONS  OF  PARTIES  145 

time  of  day  is  concerned,  it  can  conveniently  be  -made. 
Hence  it  should  not  be  called  for  during  the  hours  of  rest ; 
that  is,  the  ordinary  hours  given  to  sleep,  as,  for  instance, 
near  midnight.  For  example:  The  defendant  is  indorser 
of  a  promissory  note  payable  at  no  designated  place.  In 
the  night  of  the  day  of  maturity,  between  eleven  and  twelve 
o'clock,  the  holder  calls  up  the  maker,  who  has  gone  to 
bed,  and  presents  the  note  for  payment  which  is  refused, 
and  notice  of  dishonor  given.  The  presentment  is  not 
good. 

"The  fact  that  the  maker  or  acceptor  may  have  retired 
to  rest  will  not  make  the  presentment  improper,  for  he 
may  have  retired  in  the  daytime,  or  in  the  edge  of  the 
evening,  because  of  illness,  fatigue,  or  anything  else.  The 
only  question  on  this  point  is  whether  the  presentment  was 
made  at  a  reasonable  time  of  day;  that  question,  in  cases 
in  which  there  is  serious  ground  for  doubt,  will  and  should 
ordinarily  be  left  to  the  jury.  Still,  the  courts  are  inclined 
to  push  back  the  borders  of  doubt  as  far  as  they  can,  and 
so  bring  the  case  within  the  grounds  of  certainty.  For 
example :  The  defendant  is  indorser  of  a  promissory  note, 
payable  at  no  designated  place,  and  due  in  August.  The 
maker  lives  in  the  country,  ten  miles  from  Boston.  The 
note  is  received  at  maturity  by  a  notary  public  after  the 
close  of  banking  hours,  from  a  bank  in  Boston  which  holds 
it  for  collection,  the  bank  not  knowing  where  the  maker 
lives.  After  considerable  inquiry,  the  maker's  place  of 
residence  is  ascertained,  and  the  notary,  informed  of  the 
place,  goes  as  soon  as  he  can  to  the  house,  arriving  there 
about  nine  o'clock  in  the  evening.  The  lights  of  the  house 
are  out,  and  the  inmates  have  gone  to  bed  for  the  night. 
The  notary  calls  the  maker  up,  and  presents  the  note  for 
payment,  and  payment  is  refused.  The  presentment  is 
good;  taking  into  consideration  the  distance  of  the  maker 
from  the  holder,  the  inquiry  made  to  ascertain  the  maker's 


146       THE  LAW  OF  COMMERCIAL  PAPER 

place  of  residence,  and  the  season  of  the  year,  the  time  of 
presenting  the  note  was  reasonable.  Again :  Presentment  is 
made  between  eight  and  nine  o'clock  at  the  house  of  a 
grocer.  The  house  is  shut,  and  no  one  is  there  to  give 
answer.  The  presentment  may  be  good. 

"Similar  narrowing  of  the  borders  of  doubt  has  been  made 
in  regard  to  presentment  in  the  early  morning.  Thus  pre- 
sentment upon  a  maker  at  his  place  of  residence  in  a  city 
at  eight  o'clock  in  the  morning  has  been  declared  too  early ; 
while  presentment  so  made  in  the  country,  at  a  farmer's 
house,  would  ordinarily,  it  seems,  be  reasonable." 

Presentment  for  payment  by  whom — to  whom. — Sec- 
tion 97.  Presentment  must  be  made  by  the  holder  or  his 
agent.  It  is  not  necessary  that  the  holder  indorse  the 
instrument  to  his  agent  even  by  a  restrictive  indorsement 
for  collection.  It  is  enough  if  he  delivers  the  instrument 
to  him  with  authority  to  present  it  for  payment  and  to 
collect  the  sum  due  upon  it.  For  example :  When  a  note 
has  been  indorsed  to  a  bank  for  collection,  the  actual  pre- 
sentment is  really  made  either  by  a  messenger  employed  by 
the  bank  or  by  a  notary  public. 

Presentment  to  the  acceptor  or  maker  personally  is  never 
proper  where  a  place  of  payment  is  named  in  the  instru- 
ment. Nor  is  it  proper  even  when  no  place  of  payment  is 
specified.  In  such  a  case,  presentment  must  be  made  at 
the  residence  or  place  of  business  of  the  maker  or  acceptor. 
In  neither  of  the  above  cases  is  it  necessary  to  find  the 
maker  or  acceptor  at  the  place  where  the  presentment  is 
made.  "If  he  is  absent  or  inaccessible,"  §  72,  subdivision 
4,  of  the  Negotiable  Instruments  Law,  says,  the  present- 
ment may  be  "to  any  person  found  at  the  place  where  the 
presentment  is  made."  It  is  only  in  case  no  place  of  pay- 


OBLIGATIONS  OF  PARTIES  147 

ment  is  specified  and  no  place  of  business  or  residence  can 
be  found  after  diligent  inquiry  that  a  personal  presentment 
to  the  maker  or  acceptor  is  proper.  Even  then  it  is  not 
necessary  if  he  cannot  with  reasonable  diligence  be  found. 

In  Negotiable  Instruments  Law,  §§  76,  77,  and  78,  several 
special  cases  are  provided  for.  The  sections  are  plain  ex- 
cept that  they  appear  to  require  or  contemplate  a  personal 
presentment.  That  is  not,  however,  their  meaning.  For 
example,  §  76,  providing  that  presentment  must  be  made  to 
the  executor  or  administrator  of  the  estate  of  the  deceased 
maker  or  acceptor,  does  not  mean  that  there  must  be  a 
personal  presentment  to  him,  but  that  presentment  must 
be  made  to  him  according  to  regular  rules  as  if  he  were  the 
maker  or  acceptor. 

Presentment  for   payment — manner   of  presenting". — 

Section  98.  The  exhibition  of  the  instrument  to  the  proper 
person  at  the  proper  place,  accompanied  by  a  demand  for 
its  payment,  constitutes  normally  the  formal  act  of  pre- 
sentment. The  demand,  however,  need  not  always  be  in 
express  words.  It  is  sufficient  if  the  purpose  of  the  pre- 
sentment is  clear  to  the  person  to  whom  it  is  made.  Nor  is 
an  actual  exhibition  of  the  instrument  necessary  if  the 
person  to  whom  the  presentment  is  made  indicates  by 
words  or  otherwise  that  such  an  exhibition  is  unnecessary 
or  useless.  But  the  person  making  presentment  must  have 
the  instrument  in  his  possession  at  the  time,  or  the  demand 
will  be  nugatory. 

The  presentment  of  paper  made  payable  at  a  bank  when 
the  paper  is  deposited  for  collection  in  the  same  bank  by 
the  holder  presents  several  peculiarities.  The  banking 
rooms  are  the  place  of  presentment,  and  the  bank  is  the  per- 
son to  make  presentment.  What  must  the  officers  of  the 


148        THE  LAW  OF  COMMERCIAL  PAPER 

bank  do  in  order  to  make  a  valid  presentment?  Must  the 
cashier  or  note  teller  stand  up  and  state  aloud  that  he  holds 
the  note  and  presents  it?  Certainly  not.  The  mere  pres- 
ence of  the  instrument  in  the  bank  to  the  knowledge  of  the 
bank  is  sufficient.  If  on  the  day  of  maturity  up  to  the 
close  of  banking  hours  the  maker  or  acceptor  has  no  funds 
in  the  bank  applicable  to  the  payment  of  the  instrument,  it 
is  dishonored.  It  probably  is  not  even  necessary  for  the 
bank  officers  to  go  through  the  formality  of  examining  the 
account  of  the  maker  or  acceptor,  if  they  know  without 
doing  so  that  he  has  not  sufficient  money  to  his  credit  to 
pay  the  instrument.  Of  course,  although  this  is  another 
point,  if  the  maker  or  acceptor  has  money  deposited  gen- 
erally to  his  credit  in  the  bank,  it  is  the  business  and  duty 
of  the  bank  to  apply  it  in  payment  of  the  instrument.  The 
Negotiable  Instruments  Law  in  most  states  says: 

"Where  the  instrument  is  made  payable  at  a  bank  it  is 
an  equivalent  to  an  order  to  the  bank  to  pay  the  same  for 
the  account  of  the  principal  debtor  thereon." 

Protest. — Section  99.  We  have  now  completed  our  ex- 
amination of  presentment  for  acceptance  and  presentment 
for  payment,  the  first  steps  or  step  which  must  be  taken 
by  the  holder  in  order  to  fix  the  liability  of  the  indorsers  of 
a  note  and  the  drawer  and  indorsers  of  a  bill.  Later  we 
shall  take  up  when  delay  in  making  presentment  is  excused, 
and  when  presentment  is  altogether  dispensed  with. 

After  presentment  either  for  acceptance  or  for  payment, 
if  the  instrument  is  dishonored,  the  next  step  for  the  holder 
to  take  in  order  to  hold  the  drawer  and  indorsers  is,  in  the 
case  of  promissory  notes  and  inland  bills  of  exchange,  the 
giving  of  notice  of  dishonor  to  the  drawer  and  indorsers. 
But  foreign  bills  of  exchange  not  only  must  be  presented 


OBLIGATIONS  OF  PARTIES  149 

but  must  be  protested,  before  notice  is  given  the  drawer  and 
indorsers. 

In  taking  up  the  subject  of  protesting  foreign  bills,  a 
foreign  bill  must  be  distinguished  from  an  inland  bill.  An 
inland  bill  is  one  which  is  both  drawn  and  payable  in  the 
same  state  of  the  United  States,  or  in  the  same  country. 
A  foreign  bill  is  one  which  is  drawn  in  one  state  of  the 
United  States  and  payable  in  another,  or  is  drawn  in 
one  country,  as  the  United  States,  and  is  payable  in  an- 
other, as  England.  Since  a  bill  need  not  state  on  its  face 
where  it  is  drawn  or  where  it  is  payable,  in  which  event  it 
is  payable,  as  we  have  seen,  at  the  residence  or  place  of 
business  of  the  acceptor,  wherever  that  may  be,  it  is  obvious 
that  it  may  be  impossible  from  the  face  of  an  instrument 
to  ascertain  whether  or  not  it  is  a  foreign  bill,  and,  there- 
fore, requires  prptest.  To  relieve  the  holder  from  the 
necessity  of  determining  at  his  peril  whether  a  protest 
is  necessary,  it  is  provided  that  unless  the  instrument  pur- 
ports on  its  face  to  be  drawn  in  one  state  or  country  and 
payable  in  another,  it  may  be  treated  as  an  inland  bill  and 
not  protested.  (§§  128,  151.) 

May  inland  bills  and  promissory  notes  be  protested  ?  Yes ; 
although  not  necessary,  protest  of  notes  and  inland  bills  is 
permitted  in  most  of  the  United  States. 

The  protest  of  a  negotiable  instrument  is  the  making  of 
a  public  record  by  a  notary  public  of  the  facts  showing 
that  the  instrument  has  been  dishonored.  The  protesting 
of  an  instrument  may  be  divided  into  three  constituent 
acts,  each  one  of  which  must  be  performed  by  the  same 
notary  public :  ( I )  the  presentment  for  payment  or  accept- 
ance and  demand  for  payment  or  acceptance;  (2)  the 


150        THE  LAW  OF  COMMERCIAL  PAPER 

"noting"  of  the  protest,  and  (3)  the  execution  of  the  cer- 
tificate of  protest. 

1 i )  With  respect  to  the  presentment  by  the  notary,  noth- 
ing need  be  said  except  that  in  making  the  presentment  he 
must  be  governed  by  all  the  rules  we  have  found  established 
with  respect  to  the  time,  day,  hour,  place,  etc.,  of  present- 
ment. 

(2)  "Noting"  of  the  protest  is  nothing  more  than  the 
making  of  a  memorandum  on  the  instrument  of  the  essential 
facts  which  must  later  be  incorporated  into  the  certificate 
of  protest. 

(3)  The    execution    of    the    certificate    of    protest    is 
strictly  the  protest,  that  is,  the  making  of  a  public  record  of 
the  facts  showing  the  dishonor  of  the  paper.     The  certifi- 
cate of  protest  must  be  executed  on  the  day  the  instrument 
is  presented  and  dishonored,  unless  the  protest  is  "noted" 
on  that  day.     If  there  is  a  timely  "noting,"  the  certificate 
may  be  later  prepared  and  executed.     Negotiable  Instru- 
ments Law,  §  154,  provides: 

"When  a  bill  is  protested,  such  protest  must  be  made 
on  the  day  of  its  dishonor,  unless  delay  is  excused  as  herein 
provided.  When  a  bill  has  been  duly  noted,  the  protest 
may  be  subsequently  extended  as  of  the  date  of  the  noting." 

The  certificate  of  protest  must  comply  with  the  following 
requirements  of  §  152: 

The  protest  must  be  annexed  to  the  bill,  or  must  contain 
a  copy  thereof,  and  must  be  under  the  hand  and  seal  of 
the  notary  making  it,  and  must  specify: 


OBLIGATIONS  OF  PARTIES  151 

1 i )  The  time  and  place  of  presentment ; 

(2)  The  fact  that  presentment  was  made  and  the  man- 
ner thereof; 

(3)  The  cause  or  reason  for  protesting  the  bill; 

(4)  The  demand  made  and  the  answer  given,  if  any,  or 
the  fact  that  the  drawee  or  acceptor  could  not  be  found. 

The  following  is  a  form  of  certificate  of  protest  used  by 
the  Commercial  National  Bank  of  Madison,  Wis. : 


STATE  OF  WISCONSIN,  \ 
Dane  County.         J 
On  the day  of 

in   the   year   of   our   Lord  one   thousand   nine   hundred   and 

,  at  the  request  of  the  Commercial  National 

Bank,  Madison,  I   , 

Notary  Public,  duly  admitted  and  sworn,  dwelling  in  the  City 
of  Madison,  and  County  of  Dane,   and  State  aforesaid,   did 

present  the  original  ,  which  is 

hereto  annexed   . 


and  demanded  thereof  which 

was  refused. 

WHEREUPON,  I,  the  said  Notary,  did  protest,  and  by  these 
presents  do  publicly  and  solemnly  protest,  as  well  against  the 

drawer  and  indorser  of  the  said 

as  against  all  others  whom  it  doth  concern,  for  Exchange,  Re- 
Exchange,  and  all  costs,  charges,  damages  and  interest  already 

incurred  and  to  be  hereafter  incurred  for  want  of 

of  the  said  

And  I,  the  said  Notary,  do  hereby  certify  that  on  the  same 
day  and  year  above  written,  notices  of  the  foregoing  Protest 
were  delivered  by  me  as  follows: 
Notice    for. . 


152       THE  LAW  OF  COMMERCIAL  PAPER 

Notice    for 

And  I  do  further  certify  that  on  the  same  day  and  year  above 
written,  notices  of  the  foregoing  Protest  (a  copy  of  which  is 
on  the  back  hereof),  were  deposited  in  the  post  office  (postage 
of  the  same  being  paid),  at  Madison,  as  follows: 
Notice    for. . 


Each  of  the  above-named  places  being  the  reputed  place  of 
residence  of  the  persons  to  whom  these  notices  were  directed. 

IN  WITNESS  HEREOF,  I  have  hereunto  set  my  hand,  and  af- 
fixed my  Seal  Notarial,  the  day  and  year  above  written. 


Notary  Public. 

A  certificate  of  protest  of  a  foreign  bill  is  presumptive 
evidence  in  the  court  of  any  state  or  country  of  the  fact 
that  the  instrument  has  been  duly  presented  and  dishonored 
by  the  acceptor. 

The  certificate  of  protest  of  a  foreign  bill  is,  however, 
something  more  than  evidence  of  dishonor.  If  there  has 
been  no  protest,  there  can  be  no  recovery  against  the  drawer 
and  indorsers.  On  the  other  hand,  if  the  certificate  is  lost, 
the  fact  of  dishonor  and  protest  may  be  proved  by  any 
available  evidence.  In  the  case  of  promissory  notes  and 
inland  bills,  protest,  as  we  have  seen,  is  not  necessary,  but 
because  the  certificate  is,  according  to  the  statute,  pre- 
sumptive evidence  of  the  facts  stated  in  it,  it  is  the  banking 
custom  to  protest  all  negotiable  paper  which  is  dishonored. 

Notice  of  dishonor — form. — Section  100.  The  next  and 
last  step  to  be  taken  by  the  holder  after  protest  in  the  case 
of  a  foreign  bill,  and  in  the  case  of  a  promissory  note  or 
inland  bill,  after  presentment  and  dishonor,  is  notice  of 
dishonor. 


OBLIGATIONS  OF  PARTIES  153 

The  notice  may  be  in  writing  or  merely  oral  and  may  be 
given  in  any  terms  which  sufficiently  identify  the  instru- 
ment and  indicate  that  it  has  been  dishonored  by  nonaccept- 
ance  or  nonpayment.  (Neg.  Inst.  Law,  §95.)  A  written 
notice  need  not  be  signed,  and  an  insufficient  written  notice 
may  be  supplemented  and  validated  by  verbal  communica- 
tion. A  misdescription  of  the  instrument  does  not  vitiate 
the  notice,  unless  the  party  to  whom  the  notice  is  given  is 
in  fact  misled  thereby.  (Neg.  Inst.  Law,  §  94.) 

A  notice  of  dishonor,  then,  may  be  an  unsigned  com- 
munication in  writing,  or  an  oral  communication,  or  a  com- 
munication partly  written  and  partly  oral.  The  notice  (i) 
ought  to  identify  the  dishonored  instrument,  and  (2)  must 
indicate  that  it  has  been  dishonored  by  nonpayment. 

The  usual  and  proper  mode  of  describing  the  dishonored 
instrument  in  a  notice  of  dishonor  is  by  giving  its  amount, 
its  date,  its  date  of  maturity,  and  the  names  of  all  the 
parties  to  it.  But,  as  the  Negotiable  Instruments  Law  says, 
a  misdescription,  and  by  implication  an  incomplete  descrip- 
tion, does  not  vitiate  the  notice,  if  the  person  receiving  it 
knows  that  it  relates  to  a  bill  or  note  upon  which  he  is 
drawer  or  indorser.  For  this  reason  a  notice  which  mis- 
states the  amount  and  does  not  state  the  names  of  the  in- 
dorsers,  has  been  held  sufficient  (King  v.  Hurley,  85  Me. 
525),  the  court  saying:  "The  defendant,  however,  does  not 
show  that  he  was  in  the  least  misled  or  confused  by  the 
omission,  or  by  the  mistake.  On  the  contrary,  it  clearly 
appears  that  he  understood  the  notice  to  refer  to  the  note 
in  suit.  He  was,  therefore,  fully  informed  of  the  dis- 
honor of  this  note  and  that  the  holder  looked  to  him  for 
payment.  This  was  sufficient  to  fix  his  liability." 

An  instrument  is  "dishonored  by  nonpayment"  when  it 


154       THE  LAW  OF  COMMERCIAL  PAPER 

is  duly  presented  for  payment  and  payment  is  refused  or 
cannot  be  obtained  (Neg.  Inst.  Law,  §83).  An  indication 
of  dishonor  is,  therefore,  an  indication  ( i )  that  a  technical 
presentment  for  payment  has  been  made,  and  (2)  that  the 
instrument  is  unpaid.  Both  of  these  elements  of  a  "dis- 
honor by  nonpayment"  must  appear  from  the  notice  by 
"reasonable  intendment,"  although  they  need  not  be  ex- 
pressly stated  in  it.  Under  this  rule,  a  mere  statement  that 
the  instrument  is  due  and  unpaid  is  insufficient.  There 
may  have  been  no  presentment.  Again,  a  statement  that 
payment  has  been  demanded  is  not  enough.  Due  present- 
ment is  a  presentation  of  the  instrument  to  the  -maker  or 
acceptor,  as  well  as  a  demand.  A  notice  stating  directly 
that  the  instrument  has  been  "dishonored"  or  "protested" 
is  valid,  because  the  reasonable  intendment  is  that  the 
proper  steps  to  dishonor  the  paper  have  been  taken. 

The  following  is  the  usual  form  of  notice : 
STATE  OF  WISCONSIN.  1 

i  ss   * 

Dane    County.         j 

Madison, 19 

Please  Take  Notice,  That  a   

for  $ and  

Dated  

Payable    

At    

by   

On 

Indorsed  by 


Being  this  day  due,  presented  and  unpaid,  and  by  me  protested 

for  non ,  I  hereby  notify  you  that  the 

holders  look  to  you  for  payment,  damages,  interest  and  costs, 


OBLIGATIONS  OF  PARTIES  155 

it  having  been  duly  presented  and thereof 

demanded,  which  was  refused. 

Done   at   the   request   of   The   Commercial   National   Bank, 
Madison. 


Notary  Public. 
To 

(If  notices  other  than  your  own  are  inclosed,  for  your  own 
protection  see  that  they  are  properly  forwarded.) 

It  should  be  noted  that  the  above  notice  assumes  that 
the  instrument  has  been  protested.  Since,  however,  protest 
is  necessary  only  in  the  case  of  foreign  bills,  the  notice 
need  recite,  in  the  case  of  promissory  notes  and  inland  bills, 
simply  that  the  instrument  has  been  presented  and  dis- 
honored. The  explanation  of  this  feature  of  the  printed 
form  is  the  common  practice  referred  to  above  of  protest- 
ing all  dishonored  negotiable  paper. 

Notice  of  dishonor — by  whom  given — to  whom  given.— 

Section  101.  The  notice  may  be  given  by  or  on  behalf  of 
the  holder,  or  by  or  on  behalf  of  any  party  to  the  instru- 
ment who  might  be  compelled  to  pay  it  to  the  holder,  and 
who,  upon  taking  it  up,  would  have  a  right  to  reimburse- 
ment from  the  party  to  whom  the  notice  is  given. 

An  illustration  may  make  this  clearer.  X  is  the  holder 
of  a  note  indorsed  successively  by  A,  B,  C,  and  D.  Upon 
dishonor,  X  may  give  notice  to  all  the  indorsers,  in  which 
event  each  becomes  responsible  to  X  for  the  amount  of  the 
note;  or  he  may  give  notice  to  D  only.  If  he  pursues  the 
latter  course,  D's  responsibility  to  X  being  fixed,  D  may, 
in  order  to  protect  himself,  give  notice  to  any  or  all  of 
the  three  prior  indorsers 

Suppose  D  does  send  notice  to  B  and  C,  what  effect  has 


156       THE  LAW  OF  COMMERCIAL  PAPER 

the  serving  of  these  notices  on  the  rights  of  the  holders? 
They  have  the  same  effect  in  fixing  the  liability  of  B  and 
C  as  notices  sent  by  him  personally.  The  result  is  that 
each  of  these  indorsers,  B,  C,  and  D,  is  responsible  for  the 
amount  of  the  note  to  X ;  if  D  pays  it  he  may  look  for 
reimbursement  to  either  B  or  C  but  if  B  pays  it,  he  is 
without  recourse  on  A  who  has  received  notice  from  no 
one.  The  Negotiable  Instruments  Law  states  the  rule  as 
follows : 

"§  92.  Where  notice  is  given  by  or  on  behalf  of  a  party 
entitled  to  give  notice,  it  inures  to  the  benefit  of  the  holder 
and  all  parties  subsequent  to  the  party  to  whom  notice  is 
given." 

If  we  suppose  that  the  holder,  X,  instead  of  notifying  D 
only,  had  also  notified  A,  the  notice  would  fix  the  liability 
of  A  not  only  to  X  but  also  to  D.  And  to  carry  the  case  a 
step  farther,  had  D  notified  B  and  C,  the  intermediate  in- 
dorsers between  him  and  A,  the  notice  to  A  would  operate 
for  their  benefit  as  well  as  for  that  of  D.  In  other  words, 
due  notice  from  the  holder  to  the  first  indorser  fixed  his 
liability  to  all  subsequent  indorsers  who  were  themselves 
bound  to  the  holder.  The  Negotiable  Instruments  Law  says : 

"§  91.  Where  notice  is  given  by  or  on  behalf  of  the 
holder,  it  inures  to  the  benefit  of  ...  all  prior  parties  who 
have  a  right  of  recourse  against  the  party  to  whom  it  is 
given." 

It  is  not  necessary  for  the  holder,  or  for  a  party  entitled 
to  give  notice,  to  attend  personally  to  the  matter.  He 
may,  and  usually  does,  act  by  an  agent.  A  notice  of  dis- 
honor sent  by  an  agent  is  peculiar  in  that  it  need  not  be  given 
in  the  name  of  his  principal,  but  may  be  given  in  the  agent's 


OBLIGATIONS  OF  PARTIES  157 

own  name,  or  in  the  name  of  any  other  party  who  is  en- 
titled to  give  notice.  For  example,  X  is  the  holder  of  a 
note  indorsed  successively  by  A,  B,  and  C.  X  gives  notice 
to  the  last  indorser,  C,  who  employs  Y  to  notify  A  and  B. 
A  notice  by  Y  in  his  own  name,  as  holder,  is  sufficient, 
although  he  is  not  the  holder.  And  a  notice  by  Y,  in  the 
name  of  the  holder  X,  who  has  not  authorized  him  to  act, 
is  good.  This  is  provided  in  the  Negotiable  Instruments 
Law. 

"§  90.  Notice  of  dishonor  may  be  given  by  an  agent, 
either  in  his  own  name,  or  in  the  name  of  any  party 
entitled  to  give  notice,  whether  that  party  be  his  principal 
or  not." 


Notice  of  dishonor — time. — Section  102.  Notice  of  dis- 
honor may  be  given  as  soon  as  the  instrument  is  dishonored. 
If  a  bill  or  note  is  presented  at  ten  o'clock  in  the  morning 
of  the  day  of  maturity  and  payment  is  not  obtained,  the 
dishonor  is  complete  and  notice  may  at  once  be  given.  Or, 
if  an  indorser  receive  notice  from  the  holder,  he  may  at 
once  notify  the  prior  indorsers.  But  such  expedition  is  not 
necessary.  The  time  within  which  notice  must  be  given  is 
determined  by  certain  definite  rules  which  have  been  incor- 
porated in  the  Negotiable  Instruments  Law. 

"§  1 02.  Where  the  person  giving  and  the  person  to 
receive  notice  reside  in  the  same  place,  notice  must  be  given 
within  the  following  times: 

"i.  If  given  at  the  place  of  business  of  the  person  to 
receive  notice,  it  must  be  given  before  the  close  of  business 
hours  on  the  day  following. 

"2.  If  given  at  his  residence,  it  must  be  given  before  the 
usual  hours  of  rest  on  the  day  following. 

"3.  If  sent  by  mail,  it  must  be  deposited  in  the  post  office 


158       THE  LAW  OF  COMMERCIAL  PAPER 

in  time  to  reach  him  in  the  usual  course  on  the  day  fol- 
lowing." 

"§  103.  Where  the  person  giving  and  the  person  to  re- 
ceive notice  reside  in  different  places,  the  notice  must  be 
given  within  the  following  times: 

"i.  If  sent  by  mail,  it  must  be  deposited  in  the  post  office 
in  time  to  go  by  mail  the  day  following  the  day  of  dishonor, 
or,  if  there  be  no  mail  at  a  convenient  hour  on  that  day,  by 
the  next  mail  thereafter. 

"2.  If  given  otherwise  than  through  the  post  office,  then 
within  the  time  that  notice  would  have  been  received  in 
due  course  of  mail,  if  it  had  been  deposited  in  the  post 
office  within  the  time  specified  in  the  last  subdivision." 

"§  93-  Where  the  instrument  has  been  dishonored  in 
the  hands  of  an  agent,  he  may  either  himself  give  notice 
to  the  parties  liable  thereon,  or  he  may  give  notice  to  his 
principal.  If  he  give  notice  to  his  principal,  he  must  do 
so  within  the  same  time  as  if  he  were  the  holder,  and  the 
principal,  upon  the  receipt  of  such  notice,  has  himself  the 
same  time  for  giving  notice  as  if  the  agent  had  been  an 
independent  holder." 

An  illustration  of  the  operation  of  these  rules  will  show 
that,  although  the  time  within  which  a  notice  of  dishonor 
must  be  given  or  dispatched  by  mail  is  fixed,  the  time 
within  which  an  indorser  will  receive  notice  may  vary 
greatly  with  the  circumstances.  Y  is  the  agent  for  collec- 
tion of  a  bill  for  the  holder,  X.  The  bill  is  indorsed  by  A, 
B,  C,  D,  and  E,  who  indorsed  successively  in  the  order 
named.  Upon  dishonor,  Y,  the  agent,  may  notify  each  of 
the  five  indorsers  on  behalf  of  the  holder,  X.  If  he  pursues 
this  course  the  notices  if  sent  by  mail  must  be  deposited 
in  the  post  office  not  later  than  the  day  following  the  dis- 


OBLIGATIONS  OF  PARTIES  159 

honor.  A  delay  by  him  until  the  second  day  after  dishonor 
(unless  the  circumstances  bring  the  case  within  §  103  subd. 
i)  would  discharge  A,  B,  C,  D,  and  E.  Y,  however,  in- 
stead of  notifying  the  indorsers,  may  dispatch  a  notice  by 
mail  to  his  principal,  X.  Upon  its  receipt,  X  may  wait 
until  the  day  following  before  mailing  a  notice  to  E,  the 
fifth  and  last  indorser.  E,  taking  the  full  time  allowed  for 
giving  notice,  may  notify  the  fourth  indorser,  D,  who  in 
turn  notifies  C,  and  so  on.  It  is  perfectly  possible  that  sev- 
eral weeks  or  even  longer  may  elapse  before  A,  the  first 
indorser,  receives  notice.  Yet  when  he  is  notified,  he  is 
just  as  effectually  bound  as  if  a  notice  had  been  sent  him 
directly  by  the  holder  or  his  agent. 

Notice  of  dishonor — place. — Section  103.  If  the  message 
constituting  the  notice,  whether  oral  or  in  writing,  whether 
delivered  in  person  or  by  messenger,  or  sent  through  the 
mail,  is  actually  received  by  the  indorser  within  the  time 
that  would  have  been  required  for  delivery  had  the  notice 
been  sent  to  the  place  designated  by  the  law  as  the  proper 
address  to  which  the  notice  must  be  sent,  the  notice  is 
sufficient.  (Neg.  Inst  Law,  §  107-3,  last  sentence.)  But, 
if  the  holder  does  not  wish  to  assume  the  risk  of  the  mes- 
sage being  actually  received  within  the  proper  time,  the 
simple  course,  whatever  the  means  of  transmission  may  be, 
is  to  address  it  in  accordance  with  the  following  rules  laid 
down  in  the  Negotiable  Instruments  Law: 

"§  109.  Where  a  party  has  added  an  address  to  his  sig- 
nature, notice  of  dishonor  must  be  sent  to  that  address ;  but 
if  he  has  not  given  such  address,  then  the  notice  must  be 
sent  as  follows: 

"i.  Either  to  the  post  office  nearest  to  his  place  of  resi- 
dence, or  to  the  post  office  where  he  is  accustomed  to  receive 
his  letters;  or 


160       THE  LAW  OF  COMMERCIAL  PAPER 

"2.  If  he  live  in  one  place,  and  have  his  place  of  business 
in  another,  notice  may  be  sent  to  either  place ;  or 

"3.  If  he  is  sojourning  in  another  place,  notice  may  be 
sent  to  the  place  where  he  is  so  sojourning.  .  .  ." 

If  the  indorser  were  a  farmer,  who,  to  suit  his  conven- 
ience, received  his  mail  at  the  one  of  two  neighboring  post 
offices  more  distant  from  his  home,  notice  might  properly 
be  sent  to  either  under  Rule  I.  Rule  2  would  apply  to  the 
case  of  an  indorser  residing  in  a  suburban  town,  whose 
place  of  business  is  in  a  large  city.  An  example  of  Rule 
3  is  the  case  (Chouteau  v.  Daniel  Webster,  6  Metcalf,  I 
Mass.)  of  a  notice  sent  to  Daniel  Webster  at  Washington 
while  he  was  there  attending  to  his  duties  as  a  United 
States  senator,  although  his  legal  residence  and  office  were 
in  Boston.  It  was  held  that  the  notice  addressed  to  Wash- 
ington, the  place  of  his  temporary  residence  or  sojourning, 
was  sufficient,  the  Court  saying: 

"The  ground  relied  upon  to  show  that  such  notice  was 
not  sufficient  is  that  the  defendant's  general  domicile  and 
place  of  business  were  in  the  city  of  Boston,  where  he  had 
at  all  times  an  agent  who  had  the  charge  and  management 
of  his  affairs.  The  defendant,  though  his  domicile  was  at 
Boston,  was  actually  resident  at  Washington,  in  discharge 
of  his  public  duties  as  a  senator,  at  a  session  of  Congress 
called  by  public  proclamation,  and  continued  until  after  the 
time  at  which  the  notice  was  sent;  so  that  the  place  where 
he  might  be  presumed  to  be  actually  was  fixed  and  well 
known  by  the  nature  of  these  duties.  Under  these  cir- 
cumstances, the  courts  are  of  the  opinion  that  notice  to 
the  defendant  by  mail,  addressed  to  him  at  Washington, 
was  good  and  sufficient  notice  of  the  dishonor  of  these 
notes.  This  decision  is  founded  on  the  circumstances  of 
the  particular  case,  and  may  be  varied  by  other  facts.  It 


OBLIGATIONS  OF  PARTIES  161 

is  not  like  a  case  of  a  merchant  stopping  for  a  day  or  two 
at  a  hotel  or  watering  place,  or  on  a  journey  of  business 
or  pleasure." 

Notice  of  dishonor — to  whom  given. — Section  104. 
Negotiable  Instruments  Law,  §§  97, 98  and  99,  governs  cases 
where  the  drawer  or  the  indorser  is  dead,  where  a  partner- 
ship has  drawn  or  indorsed  a  bill  or  note,  and  where  there 
are  joint  drawers  or  indorsers.  They  show  to  whom  in 
such  case  notice  of  dishonor  should  be  given. 

When  presentment,  protest,  and  notice  dispensed  with 
— when  delay  excused — waiver. — Section  105.  The  fol- 
lowing sections  of  the  Negotiable  Instruments  Law  state  the 
circumstances  under  which  presentment  for  acceptance,  pre- 
sentment for  payment,  notice  of  dishonor,  and  protest  are 
dispensed  with,  or  under  which  a  delay  in  taking  any  one  of 
those  steps  is  excused: 

Presentment  for  acceptance :     §  147. 
Presentment  for  payment:     §§8i,  82. 
Notice  of  dishonor:    §§  109,  no,  in,  112. 
Protest:    §158. 

It  will  be  impossible  to  give  within  the  limits  of  this  text 
a  thorough  discussion  of  these  sections.  The  following 
summary  view  of  their  effect  is  quoted  from  Norton  on 
Bills  and  Notes  (3rd  ed.),  pp.  397-402: 

"Presentment  -may  be  dispensed  with  when,  after  the 
exercise  of  reasonable  diligence,  it  cannot  be  made;  and 
notice  of  dishonor  is  dispensed  with  when,  under  the  same 
circumstances,  it  cannot  be  given  or  does  not  reach  the 


162        THE  LAW  OF  COMMERCIAL  PAPER 

parties  sought  to  be  charged.  It  is  impossible  to  define 
accurately  what  constitutes  reasonable  diligence,  or  to  do 
more  than  to  enumerate  some  of  the  instances  in  which  pre- 
sentment and  notice  may  be  dispensed  with  under  this  gen- 
eral rule. 

"War,  disease,  the  suspension  of  commercial  intercourse 
by  superior  force,  such  as  the  public  and  positive  prohibi- 
tion of  commerce,  occupation  of  a  country  by  public 
enemies,  and  the  like,  exonerate  the  holder  from  present- 
ment and  notice.  The  interest  of  the  public  forbids  such 
acts,  and  therefore  the  individual  cannot  be  held  responsible 
if  he  fail  to  perform  them.  Thus,  the  public  policy  forbids 
communication  with  districts  infected  by  such  plagues  as 
the  cholera  or  yellow  fever,  because  public  safety  requires 
their  quarantine.  Hence  even  if  the  matter  be  not  regu- 
lated by  express  statute,  as  it  is  in  some  states,  the  doctrines 
of  the  common  law  forbid  all  business  intercourse  with  the 
inhabitants  of  such  districts.  But  the  other  rule  of  the 
common  law,  that  inability  to  perform  the  terms  or  condi- 
tions of  a  contract  by  reason  of  inevitable  accident  or 
casualty  constitutes  no  excuse  for  nonperformance,  does 
not  apply  to  the  presentment  of  negotiable  instruments  and 
notice  of  their  dishonor,  because  questions  of  presentment 
and  notice  depend  upon  due  diligence.  The  holder,  if  he 
has  used  due  diligence  in  presenting  the  bill  or  note,  and 
in  notifying  parties  of  its  dishonor,  has  done  all  the  law 
requires  of  him.  Diligence  on  his  part  is  measured  by 
the  general  convenience  of  the  commercial  world,  and  the 
practicability  of  accomplishing  the  end  required  by  ordi- 
nary skill,  caution,  and  effort.  And  it  only  requires  that 
demand  and  notice  must  be  made  and  given  within  a  reason- 
able time  after  the  impediment  is  removed.  This  rule  also 
does  not  apply  to  indorsers,  unless  the  objection  applies  to 
them.  For  example,  where  a  maker  or  acceptor  is  in  a 
beleaguered  town,  and  so  inaccessible,  it  is  merely  the  pre- 


OBLIGATIONS  OF  PARTIES  163 

sentment  to  him  which  is  excused.  The  indorsees  liability 
should  be  at  once  fixed  by  sending  him  notice  and  if  the 
indorser  can  be  notified,  notice  to  him  is  not  excused,  for 
the  Law  Merchant  insists  on  compliance  with  its  formali- 
ties as  far  as  they  can  be  observed. 

"In  cases  of  absence,  death,  or  inability  to  discover  the 
residence  of  the  maker  or  acceptor,  the  question  is  one  of 
diligence.  When  the  maker  of  a  note  or  acceptor  of  a 
bill  has  absconded,  that  will  ordinarily  excuse  a  demand, 
and  notice  of  the  fact  is  sufficient  to  hold  all  the  indorsers. 
Where  the  maker  or  acceptor  is  a  seaman  on  a  voyage,  hav- 
ing no  domicile,  the  indorser  is  liable  without  a  demand 
being  made ;  and  in  every  case  where  the  maker  or  acceptor 
has  no  known  place  of  residence,  or  place  at  which  the 
note  can  be  presented,  the  holder  will  in  like  manner  be 
excused  from  making  any  demand  whatever.  The  com- 
monest instance  of  this  last  general  statement  is  where  the 
maker  or  acceptor  removes  from  the  state,  and  continues 
to  reside  abroad  until  its  maturity.  It  is  deemed  in  such 
cases  a  better  business  rule  that  the  holder  shall  not  be 
bound  to  seek  out  the  maker  or  acceptor  or  his  place  of 
residence  in  the  state  to  which  he  has  removed  for  the 
purpose  of  presenting  the  instrument  and  demanding  pay- 
ment. It  is  probably  also  the  law  that  he  is  not  bound  to 
present  it  at  the  last  known  place  of  business  or  residence 
of  the  maker  or  acceptor,  though  the  cases  are  not  explicit 
on  this  point.  The  most  that  is  said  is  that  a  presentment 
will  be  sufficient  if  made  at  the  last  known  place  of  resi- 
dence or  business;  but  it  probably  would  not  be  enjoined 
upon  the  holder  that  it  be  done,  because  such  a  formality 
would  be  of  no  practical  value.  In  case  of  death  of  the 
maker  or  acceptor,  the  general  principle  which  we  have 
stated  above  governs  the  case.  If  the  instrument  is  made 
payable  at  a  bank  or  other  particular  place,  it  must  still 
be  presented  there.  If  its  presentment  be  impossible,  be- 


164       THE  LAW  OF  COMMERCIAL  PAPER 

cause  of  the  death  of  the  maker  or  acceptor,  and  no  one 
can  be  found  to  whom  to  make  presentment,  its  present- 
ment will  be  excused.  If  a  personal  representative  has  been 
appointed,  presentment  and  demand  must  be  made  to  him. 
And  if  there  is  no  personal  representative,  and  at  the  time 
of  his  death  the  maker  or  acceptor  had  a  known  place  of 
residence,  presentment  should  be  made  at  his  former  resi- 
dence. In  this  case,  as  in  all  others,  the  death  of  the  ac- 
ceptor or  maker  never  dispenses  with  notice  to  the  drawer 
and  indorsers  of  the  fact  of  nonacceptance  or  of  nonpay- 
ment. 

"Waiver. — The  third  class  of  cases  mentioned  in  the 
original  text  is  what  is  known  as  'Waiver/  It  may  be  of 
two  kinds:  (i)  Expressed  in  words;  or  (2)  implied  from 
acts.  When  presentment  of  a  note  or  bill  at  maturity  or 
notice  of  its  dishonor  has  been  dispensed  with  by  prior 
agreement,  it  would  be  a  fraud  upon  the  holder  to  permit 
him  to  suffer  by  acting  upon  the  assurance  of  the  party  to 
whom  he  looks  as  security  upon  the  paper.  And  it  is  fair 
that  this  should  be  enforced  against  the  indorsers,  for  the 
conditions  of  presentment  and  demand  are  for  his  benefit 
alone.  The  commonest  forms  of  express  waiver  are  the 
words  'presentation  and  protest  waived/  or  'notices  and 
protest  of  nonacceptance  waived/  or  words  similar  in  form 
and  import,  written  or  printed  on  the  face  of  the  bill,  or 
over  all  or  some  of  the  indorsements,  or  else  on  a  separate 
piece  of  paper.  Where  it  is  written  on  the  face  of  the  bill 
or  note,  it  applies  to  all  the  parties.  Where  it  is  written 
on  a  separate  piece  of  paper,  the  instrument  is  to  be  con- 
strued according  to  its  terms.  In  extent,  the  waiver  is  con- 
strued to  apply  only  to  the  acts  which  it  specifies.  Some- 
times notice  alone  is  waived ;  sometimes  presentment,  some- 
times protest;  in  which  case  the  term  'protest'  is  deemed 
to  include  all  the  formal  facts  which  constitute  dishonor. 
Any  act,  course  of  conduct,  or  language  of  the  drawer  or 


OBLIGATIONS  OF  PARTIES  165 

indorse r  calculated  to  induce  the  holder  not  to  make  demand 
or  protest  or  give  notice,  or  to  put  him  off  his  guard,  or 
any  agreement  by  the  parties  to  that  effect,  will  dispense 
with  the  necessity  of  taking  these  steps  as  against  any  party 
so  dealing  with  the  holder.  The  reason  for  this  is  that 
the  conditions  of  demand  and  notice  are  for  the  benefit  and 
protection  of  the  drawer  and  indorser;  and  when  his  acts 
are  such  that  the  court  cannot  protect  him  without  sanc- 
tioning a  fraud  or  wrong,  or  when  the  drawer  and  indorser 
himself  waives  these  proceedings,  and  consents  to  be  bound 
without  them,  he  is  bound.  A  party  to  a  contract  may 
renounce  the  benefit  of  any  stipulation  in  it  designed  for 
his  own  protection." 


CHAPTER  X 

OBLIGATIONS   OF   PARTIES DRAWER   AND    INDORSERS 

(  Continued) 

Drawer  and  indorsers — order  of  liability  to  holder. — 
Section  106.  It  has  been  said  that  the  obligation  of  the 
drawer  of  a  bill  is  substantially  identical  with  the  obligation 
of  the  indorsers  of  a  bill  or  note.  We  have  noted  that  the 
obligation  of  the  drawer  of  a  bill  and  of  the  indorser  of 
a  bill  or  note  is  conditional,  upon  due  presentment,  protest 
(in  case  of  foreign  bills),  and  notice  of  dishonor.  In  other 
words,  the  drawer  and  indorsers  are  not  liable  on  the  in- 
strument to  the  holder  unless  he  duly  presents  the  bill  and 
takes  the  steps  prescribed  by  law  for  fixing  their  liability. 
Conversely,  they  are  liable  to  him  if  he  does  make  due 
presentment  and  takes  the  proper  steps.  But  how  are  they 
liable?  In  the  case  of  an  inland  bill,  for  example,  upon 
which  there  are  four  indorsers,  can  the  holder  by  duly 
presenting  the  instrument  to  the  acceptor,  and  giving  notice 
of  dishonor  to  the  drawer  and  each  of  the  four  indorsers, 
compel  each  of  these  five  persons  to  pay  him  the  full 
amount  of  the  bill?  Or,  may  he  hold  each  for  one-fifth 
only?  The  rule  is  that  he  may  recover  the  full  amount 
of  the  bill  from  any  one  of  the  five  parties,  but  not  from  all. 
So  soon  as  any  one  of  the  parties  has  paid  the  holder  he 
is  satisfied.  Is  there  any  one  of  the  parties  he  must  look 
to  first  for  payment?  Is  there  any  one  he  must  sue  first? 
No;  the  holder  has  his  choice  and  may  seek  payment  of 
the  bill  from  either  the  drawer  or  any  of  the  indorsers  re- 
gardless of  the  order  in  which  they  indorsed  the  paper. 

1 66 


OBLIGATIONS  OF  PARTIES  167 

Let  us  suppose  the  bill  was  drawn  by  A,  and  indorsed, 
first,  by  the  payee,  B,  second  by  C,  third  by  D,  and  fourth 
by  E  to  the  holder.  The  holder  may  sue  D  first,  and  if 
D  does  not  pay,  the  holder  may  next  sue  A,  and  if  A  does 
not  pay  the  holder  may  sue  E  or  B.  In  other  words,  the 
holder  may  look  to  the  parties  liable  in  any  order  he  sees 
fit,  but,  of  course,  as  soon  as  any  one  of  them  pays,  he  has 
no  further  remedy  against  the  others. 

Drawer  and  indorsers — order  of  liability  among  them- 
selves.— Section  107.  But  suppose  that  D,  in  the  case  above, 
pays  the  holder  the  amount  of  the  bill,  what  are  D's  rights  ? 
D  may  look  for  payment  to  all  the  parties  prior  to  him, 
i.e.,  the  acceptor,  the  drawer  A,  and  the  indorsers  B  and 
C,  in  any  order  he  sees  fit,  but  he  has  no  rights  against  the 
indorser  E,  who  is  subsequent  to  him.  The  reason  for 
this  is  that  each  party  when  accepting,  drawing,  or  indors- 
ing a  negotiable  instrument  agrees  that  he  will  pay  the 
person  who  is  the  holder  when  the  instrument  is  signed  by 
him  and  all  subsequent  holders  of  the  instrument.  In  con- 
sequence, first,  if  D  pay  the  holder,  he  resumes  his  former 
position  as  holder  and  each  of  the  prior  parties  has  agreed 
to  pay  him;  second,  D  has  no  rights  against  E,  because  E, 
when  he  indorsed,  agreed  to  pay  his  transferee  and  sub- 
sequent  holders,  and  D  is  not  a  subsequent  holder  but  has 
resumed  his  position  as  a  holder  prior  to  E.  In  fact,  D  has 
agreed  to  pay  E,  instead  of  E  to  pay  D,  and  if  D  were  al- 
lowed to  recover  from  E,  E  would  turn  about  and  compel 
D  to  repay  him.  The  matter  may  be  summed  up  in  this 
way:  the  holder  may  sue  the  acceptor,  the  drawer  or  in- 
dorsers in  any  order  he  sees  fit,  because  they  are  all  prior 
to  him.  Any  indorser  who  has  been  compelled  to  pay  the 
holder  may  look  to  any  one  of  the  parties  prior  to  him 
in  any  order  he  sees  fit,  but  he  cannot  look  to  subsequent 
parties.  The  result  is,  in  the  case  supposed,  when  D  pays 


168       THE  LAW  OF  COMMERCIAL  PAPER 

the  holder,  that  if  D  compels  C  to  pay,  C  may  look  to  the 
acceptor,  or  to  A  or  B ;  if  D  compels  B  to  pay,  B  may  look 
to  the  acceptor  or  to  A;  if  D  compels  A  to  pay,  A  may 
look  to  the  acceptor  only;  if  D  compels  the  acceptor  to 
pay,  the  acceptor  being  ultimately  liable,  has  no  one  to  look 
to.  Or,  if  D  compelled  B  to  pay,  C  would  be  discharged, 
because  B  could  look  only  to  the  acceptor  or  to  A;  if  D 
compelled  the  acceptor  to  pay,  A,  B,  and  C  would  be  dis- 
charged. The  rule,  then,  is  that,  although  the  drawer  and 
each  of  the  indorsers  are  liable  to  the  holder  or  to  any  in- 
dorser  subsequent  to  them  regardless  of  the  order  in  which 
they  signed  the  instrument,  as  among  themselves,  the 
drawer  and  indorsers  are  ultimately  liable  in  the  order 
in  which  they  signed.  The  order  of  liability  is  as  follows : 
first,  the  maker  or  acceptor  who  is  always  the  party  both 
primarily  and  ultimately  liable  for  the  payment  of  the  in- 
strument; next,  the  drawer  (in  the  case  of  a  bill);  and 
then  the  first  indorser,  the  second  indorser  and  so  on  in 
the  order  in  which  they  indorsed.  It  should  be  noted  that 
the  order  in  which  indorsers  indorse  means  the  order  in 
time  in  which  they  became  parties  to  the  instrument,  and 
not  the  order  in  which  their  signatures  appear  on  the  back 
of  the  instrument.  For  instance,  though  the  payee  might 
indorse  at  the  bottom  of  the  back  of  a  note  he  would  still 
be  the  first  indorser. 

Though  the  order  in  which  the  indorsers  indorse  is  regu- 
larly the  order  of  their  ultimate  liability,  they  may  among 
themselves  vary  it  by  agreement.  Suppose  you  wished  to 
borrow  money  from  a  bank,  but  the  bank  would  not  make 
the  loan  unless  you  secured  the  signatures  of  two  financially 
responsible  citizens,  X  and  Y.  You  secure  the  consent 
of  X  and  Y  and  make  a  promissory  note  payable  to  X.  X 
indorses  it  as  first  indorser  and  then  Y  indorses  in  blank 
and  delivers  the  instrument  to  you  for  your  use  at  the 


OBLIGATIONS  OF  PARTIES  169 

bank.  When  X  and  Y  indorsed  they  agreed  between  them- 
selves that  each  should  be  liable  for  one  half  of  the  note 
in  case  you  failed  to  pay.  At  maturity  the  note  is  duly 
presented  to  you  and  dishonored,  and  the  bank  gives  due 
notice  of  dishonor  to  both  X  and  Y.  What  are  the  rights 
of  the  bank?  It  has  (i)  an  action  against  you  as  maker 
for  the  full  amount;  (2)  an  action  against  X  as  indorser 
for  the  full  amount;  and  (3)  an  action  against  Y  as  in- 
dorser for  the  full  amount.  The  bank  may  take  its  choice 
or  sue  all  at  once  but  it  can  recover  once  only  the  amount 
of  the  note.  Let  us  suppose  the  bank  sues  X  and  recovers ; 
has  he  any  rights  against  Y  the  second  indorser?  He  cer- 
tainly would  not  have  according  to  the  ordinary  rule  because 
Y  is  an  indorser  subsequent  to  him;  but  according  to  the 
agreement  between  him  and  Y,  he  can  recover  half.  Or 
suppose  that  the  bank  recovers  from  Y  instead  of  from  X, 
what  are  Y's  rights?  Can  he  recover  the  whole  amount 
from  his  prior  indorser  X?  No,  because  by  the  special 
agreement  X  was  to  be  liable  for  one  half  only.  Thus, 
although  a  special  agreement  between  indorsers  as  to  their 
liability  is  ineffectual  so  far  as  the  holder's  rights  are  con- 
cerned, it  is  effectual  as  between  the  indorsers  who  are 
parties  to  the  agreement  to  vary  the  order  and  amount  of 
their  liability.  The  Negotiable  Instruments  Law,  §  68,  gives 
the  rule  as  follows: 

"As  respects  one  another,  indorsers  are  liable  prima  facie 
in  the  order  in  which  they  indorse ;  but  evidence  is  admissi- 
ble to  show  that  as  between  or  among  themselves  they  have 
agreed  otherwise.  Joint  payees  or  joint  indorsers  who  in- 
dorse are  deemed  to  indorse  jointly  and  severally." 

Liability  of  irregular  indorsers. — Section  108.  Indorse- 
ment, as  we  have  seen,  is  the  mode  of  transferring  a  nego- 
tiable instrument  payable  to  order.  An  indorsement,  how- 


170       THE  LAW  OF  COMMERCIAL  PAPER 

ever,  results  not  only  in  transferring  the  instrument,  but 
also  in  fixing  on  the  indorser  a  conditional  liability  to 
pay  it  if  the  maker  or  acceptor  does  not,  and  the  proper 
proceedings  upon  dishonor  are  taken  by  the  holder.  But 
since  an  indorsement  is  primarily  a  mode  of  making  a 
transfer,  it  is  clear  that  no  one  except  the  payee  or  a 
subsequent  holder  of  an  instrument  can  properly  indorse  it. 
But  sometimes  a  person  who  is  not  the  holder  does  write  his 
name  on  the  paper  as  if  he  were  indorsing.  What  is  the 
liability  of  such  an  "irregular  indorser"?  Before  the  Ne- 
gotiable Instruments  Law  several  views  were  taken  by  the 
courts.  The  Negotiable  Instruments  Law,  §  63,  provides 
that  he  shall  be  liable  as  indorser: 

"A  person  placing  his  signature  upon  an  instrument 
otherwise  than  as  maker,  drawer,  or  acceptor  is  deemed 
to  be  an  indorser,  unless  he  clearly  indicates  by  appropriate 
words  his  intention  to  be  bound  in  some  other  capacity.'* 

Thus,  if  the  payee  of  a  note  offers  it  for  sale  to  a  bank 
but  the  bank  refuses  to  buy,  doubting  the  ability  of  the 
maker  and  indorser  to  pay,  the  payee  may  induce  X,  a 
third  person,  to  indorse  his  name  on  the  paper  for  the 
purpose  of  giving  it  credit  at  the  bank.  X  is  an  irregular 
indorser,  and,  under  the  Negotiable  Instruments  Law,  as- 
sumes the  same  obligation  to  the  bank  and  subsequent 
holders  as  a  regular  indorser.  The  Negotiable  Instruments 
Law,  §64  (subd.  3),  expressly  provides:  "If  he  signs 
for  the  accommodation  of  the  payee  he  is  liable  to  all  par- 
ties subsequent  to  the  payee."  His  rights,  also,  upon  being 
compelled  to  pay,  are  the  same  as  those  of  an  ordinary 
indorser,  i.e.,  he  may  obtain  reimbursement  by  an  action  on 
the  note  against  the  maker  or  the  prior  indorsers,  including 
the  payee  for  whose  accommodation  he  signed.  It  makes 
no  difference  whether  X  or  the  payee  signed  first,  or  in 


OBLIGATIONS  OF  PARTIES  171 

-what  order  their  names  appear  on  the  back  of  the  paper. 
The  payee  is  always,  as  we  have  seen,  the  first  indorser 
and  liable  as  such. 

In  the  case  just  discussed  the  irregular  indorsement  was 
placed  on  the  note,  after  the  instrument  had  been  delivered 
to  the  payee  and  had  had  its  inception  as  a  negotiable  in- 
strument. Suppose,  however,  the  indorsement  had  been 
made  before  the  maker  had  delivered  the  note.  The  Nego- 
tiable Instruments  Law,  §64  (subd.  I  and  2),  defines  the 
liability  of  such  an  irregular  indorser  as  follows: 

"Where  a  person  not  otherwise  a  party  to  an  instrument, 
places  thereon  his  signature  in  blank  be  fort  delivery,  he 
is  liable  as  indorser,  in  accordance  with  the  following  rules : 

"i.  If  the  instrument  is  a  note  or  bill,  payable  to  the 
order  of  a  third  person  or  an  accepted  bill,  payable  to  the 
order  of  the  drawer,  he  is  liable  to  the  payee  and  to  all 
subsequent  parties. 

"2.  If  the  instrument  is  payable  to  the  order  of  the  maker 
or  drawer,  or  is  payable  to  bearer,  he  is  liable  to  all  parties 
subsequent  to  the  maker  or  drawer." 

These  rules  are  made  clearer  by  examples.  An  illustra- 
tion of  the  operation  of  Rule  I  is  a  case  where  A  makes 
a  note  payable  to  the  order  of  B,  his  creditor,  and  offers 
the  note  in  payment  of  the  debt.  B  refusing  to  receive 
the  note,  A  induces  X  to  indorse  his  name  upon  the  note 
in  order  to  give  it  credit  with  B,  who,  relying  on  the  in- 
dorsement of  X,  takes  the  note  in  payment  of  A's  debt. 
The  manifest  intention  of  the  parties  is  that  X  shall  be 
liable  to  B  and  holders  subsequent  to  B.  This  intention 
is  effectuated  by  Rule  i.  An  example  of  Rule  2  is  a  case 
where  A,  the  drawer  of  a  bill  drawn  payable  to  his  own 
3rder,  secures  X's  indorsement  before  he  delivers  it  to 


172       THE  LAW  OF  COMMERCIAL  PAPER 

B.  Here  again  X's  intention  appears  to  be  to  bind  himself 
to  B  and  subsequent  holders.  Rule  2  fixes  X's  liability 
in  accordance  with  this  intention.  The  peculiarity  in  both 
of  these  cases  is  that,  as  a  formal  matter,  B  is  the  payee 
and  therefore  the  first  indorser,  and,  were  it  not  for  the 
anomalous  character  of  X's  indorsement,  would  be  liable 
to  X  who  is  subsequent  to  him. 

Indorser  of  bearer  instrument. — Section  109.  Of  course, 
it  is  not  necessary  to  indorse  an  instrument  payable  to 
bearer  in  order  to  transfer  it.  But  the  holder  of  such  an 
instrument  may  do  so.  If  he  does,  he  "incurs  all  the 
liabilities  of  an  indorser."  (Neg.  Inst.  Law,  §67.) 

WARRANTIES  OF  AN  INDORSER  OR  TRANSFEROR 

Warranties. — Section  no.  Every  transferor  of  a  bearer 
instrument,  and  every  blank  and  special  and  qualified  in- 
dorser of  an  order  instrument,  who  transfers  for  value, 
impliedly  warrants  (quite  apart  from  his  contract  as  in- 
dorser, if  he  is  an  indorser),  like  any  seller  of  property, 
that  the  article  which  he  sells  is  what  it  purports  to  be. 
The  Negotiable  Instruments  Law  provides: 

"§65.  Every  person  negotiating  an  instrument  by  de- 
livery or  by  a  qualified  indorsement,  warrants: 

"i.  That  the  instrument  is  genuine,  and  in  all  respects 
what  it  purports  to  be. 

"2.  That  he  has  good  title  to  it. 

"3.  That  all  prior  parties  had  capacity  to  contract.  ~ 

"4.  That  he  has  no  knowledge  of  any  fact  which  would 
impair  the  validity  of  the  instrument  or  render  it  value- 
less. 

"But  when  the  negotiation  is  by  delivery  only,  the  war- 


WARRANTIES  173 

ranty  extends  in  favor  of  no  holder  other  than  the  imme- 
diate transferee. 

The  provisions  of  subdivision  three  of  this  section  do 
not  apply  to  persons  negotiating  public  or  corporate  secur- 
ities, other  than  bills  and  notes." 

"§  66.  Every  indorser  who  indorses  without  qualifica- 
tion, warrants  to  all  subsequent  holders  in  due  course: 
i.  The  matters  and  things  mentioned  in  subdivisions  one, 
two,  and  three  of  the  next  preceding  section." 

(i)  The  warranty  that  "the  instrument  is  genuine  and 
in  all  respects  what  it  purports  to  be."  Under  this  war- 
ranty the  indorser  or  transferor  is  liable  if  for  any  reasons 
the  paper  never  had  an  inception  as  a  negotiable  instrument, 
as,  for  example,  where  it  was  forged,  or  void  by  statute, 
or  where  it  was  incomplete  when  it  passed  out  of  the 
maker's,  drawer's  or  acceptor's  hands  and  he  never  in- 
tended it  to  take  effect  as  a  negotiable  instrument.  In 
Hannum  v.  Richardson  (48  Vt.  508),  the  defendant  sold 
and  indorsed  "without  recourse"  to  the  plaintiff  a  piece  of 
paper  which  purported  to  contain  a  promissory  note.  In 
fact  the  obligation  was  absolutely  void  by  a  statute  of  the 
state.  It  did  not  appear  that  the  defendant  acted  in  bad 
faith  or  knew  of  the  illegality.  It  was  held  that  the  de- 
fendant was  nevertheless  liable  on  his  warranty.  The  court 
said: 

"By  indorsing  the  note  'without  recourse'  the  defendant 
refused  to  assume  the  responsibility  and  liability  which  the 
law  attaches  to  an  unqualified  indorsement,  so  that,  in  re- 
spect to  such  liability,  it  may  perhaps  be  regarded  as  stand- 
ing without  an  indorsement.  If  it  be  so  regarded,  then  in 
what  position  do  these  parties  stand  in  respect  to  the 
transaction?  The  principle  is  well  settled  that  where  per- 


174       THE  LAW  OF  COMMERCIAL  PAPER 

sonal  property  of  any  kind  is  sold,  there  is  on  the  part  of 
the  seller  an  implied  warranty  that  he  has  title  to  the 
property,  and  that  it  is  what  it  purports  to  be,  and  is  that  for 
which  it  was  sold,  as  understood  by  the  parties  at  the  time^ 
and,  in  such  case,  knowledge  on  the  part  of  the  seller  is  not 
necessary  to  his  liability.  The  implied  warranty  is  in  this 
respect  like  an  express  warranty :  the  scienter  need  not  be 
alleged  or  approved.  ...  In  this  case  the  note  in  question 
was  given  for  intoxicating  liquor  sold  in  this  state  in 
violation  of  law,  and  therefore  was  void  at  its  inception ; 
in  short,  it  was  not  a  note,  it  was  not  what  it  purported  to 
be,  or  what  it  was  sold  and  purchased  for ;  it  is  of  no  more 
effect  than  if  it  had  been  a  blank  piece  of  paper  for  which 
the  plaintiff  had  paid  his  fifty  dollars.  In  this  view  of  the 
case,  we  think  the  defendant  is  liable  upon  a  warranty  that 
the  thing  sold  was  a  valid  note  of  hand." 

(2)  Warranty   that   the   transferor   or   indorser   has   a 
good  title.     Under  this  warranty  one  who  transfers  by  I 
delivery  an  instrument  on  which  any  of  the  indorsements! 
necessary  to  pass  title  are  forged,  is  liable  even  though  h< 
knows  nothing  of  the   forgery.     For  example,  A   is  the 
payee  of  an  instrument  payable  to  order.     The  instrumen 
is  stolen  from  him  and  his  indorsement  in  blank  is  forge< 
by  the  thief  who  sells  the  paper  to  B.     B  without  knowl 
edge  of  the  forgery  and  without  indorsement  sells  to  C,  an 
innocent  purchaser.     C  may  recover  from  B.  although  h< 
did  not  indorse  because  B  had  no  title  and  consequently 
could  convey  none  to  C. 

(3)  Warranty  that  all  prior  parties  had  capacity  to  con 
tract ;  if  the  maker,  drawer,  acceptor  or  any  prior  indorser 
is  an  infant  or  an  insane  person,  or  any  person  who  does 
not  bind  himself  by  his  signature  to  negotiable  paper,  then 
any  person  who  buys  the  paper  supposing  that  their  signa- 


ADMISSIONS  175 

tures  do  represent  the  obligations  which  on  the  face  of  the 
paper  they  purpose  to  be,  may  recover  against  his  transferor 
or  indorser  on  this  implied  warranty. 

(4pWarranty  that  he  has  no  knowledge  of  any  fact 
which  would  impair  the  validity  of  the  paper  or  render  it 
valueless.  The  insolvency  of  the  acceptor  or  maker  at  the 
time  of  the  transfer,  or  at  any  other  time,  does  not  charge 
the  transferor  on  any  of  his  warranties.  To  be  sure,  if 
it  results  in  the  inability  of  the  maker  or  acceptor  to  pay 
at  maturity,  the  transferor,  if  he  has  indorsed,  may  be  held 
as  indorser.  But  the  transferor,  when  he  sells  an  instru- 
ment which,  although  legally  valid,  is  of  no  practical  value 
because  of  the  insolvency  of  the  parties  to  it  or  other 
reason,  does  warrant  that  he  has  no  knowledge  of  any  fact 
which  renders  it  valueless.  For  example,  the  plaintiff  sold 
the  defendant  a  check  drawn  and  indorsed,  to  the  plaintiff's 
knowledge,  by  an  insolvent  person.  The  defendant  gave 
plaintiff  a  note  for  the  purchase  price.  In  an  action  on 
the  note,  the  defendant  relied  for  a  defense  on  plaintiff's 
breach  of  warranty.  It  was  held  the  defense  was  good. 
"Where  a  party  negotiates  commercial  paper,"  said  the 
Court,  "payable  to  bearer,  or  under  the  blank  indorsement 
of  another  person,  he  cannot  be  sued  on  the  paper,  because 
he  is  not  a  party  to  it ;  but  he  nevertheless  warrants  that  he 
has  no  knowledge  of  any  facts  which  prove  the  paper  to 
be  worthless,  on  account  of  the  failure  of  the  makers,  or 
by  its  being  already  paid,  or  otherwise  to  have  become  void 
or  defunct;  for,  says  Judge  Story,  'any  concealment  of  this 
nature  would  be  a  manifest  fraud.' " 


ADMISSIONS  OF  MAKER,  ACCEPTOR,  AND  DRAWER 

Admissions. — Section    in.    We  have  studied  the  con- 
tracts of  the  maker,  acceptor  and  drawer  and  know  what 


176       THE  LAW  OF  COMMERCIAL  PAPER 

they  respectively  have  promised  to  do  by  signing  a  nego- 
tiable instrument.  Before  we  leave  these  parties,  however, 
there  are  several  matters  to  be  noticed.  As  an  incident  of 
their  becoming  parties  to  a  negotiable  instrument,  and  quite 
apart  from  the  direct  contract  liability  thereby  assumed  by 
them,  the  maker,  acceptor,  and  drawer  impliedly  represent 
certain  facts  to  be  true.  The  representations  thus  made 
may  not  be  denied ;  the  party  making  the  representation  is 
said  to  have  admitted  the  fact  represented  and  is  not  per- 
mitted to  prove  that  his  representations  or  admissions  are 
not  true.  Thus,  the  maker  by  making  a  note,  and  naming 
a  payee  therein,  represents  that  the  payee  named  is  an  exist- 
ing person  and  capable  in  law  of  transferring  the  note. 
The  same  representation  or  admission  as  to  the  payee  is 
made  by  the  drawer  of  a  bill,  or  by  the  acceptor  in  accept- 
ing a  bill.  In  consequence  he  is  not  allowed  to  prove  that 
there  was  no  such  existing  person  as  the  payee  named,  or 
that  the  payee  was  an  infant  or  insane  person  or  any  other 
circumstances  which  show  that  the  payee  has  no  capacity  to 
transfer  the  paper  by  indorsement.  For  example,  if  I  made 
a  note  payable  to  an  insane  person  and  he  while  still  insane 
indorsed  it  to  you  for  value,  in  an  action  by  you  against 
me  as  maker  I  could  not  show  as  a  defense  that  the  payee 
was  insane  and  therefore  incapable  of  making  a  valid  in- 
dorsement to  you.  The  Negotiable  Instruments  Law  pro- 
vides : 

"§  60.  The  maker  of  a  negotiable  instrument  by  making 
it  ...  admits  the  existence  of  the  payee  and  his  then 
capacity  to  indorse." 

"§  61.  The  drawer  by  drawing  the  instrument  admits 
the  existence  of  the  payee  and  his  capacity  to  indorse." 

"§  62.     The  acceptor  by  accepting  the  instrument  .  .  .  | 


ADMISSIONS  177 

admits  .  .  .  the  existence  of  the  payee  and  his  then  capac- 
ity to  indorse." 

In  addition  to  the  admission  of  the  existence  and  capacity 
of  the  payee  which  the  acceptor  makes  in  common  with  the 
drawer  and  the  maker,  he  further  admits  "the  existence  of 
the  drawer,  the  genuineness  of  his  signature,  and  his  capac- 
ity and  authority  to  draw  the  interest."  (Neg.  Inst.  Law, 

§62-1.) 

(1)  Acceptor's  admission  of  the  existence,  capacity,  and 
authority  of  the  drawer.    Example :    An  infant  who  is  un- 
known to  you  and  to  whom  you  owe  nothing  draws  a  bill 
of  exchange  on  you  payable  to  me  and  delivers  it  to  me  in 
payment  of  debt.     Upon  presentment  for  acceptance  you 
accept  the  instrument.     You  have  no  defense  against  me. 
By  acceptance  you  admitted  the  capacity  and  authority  of 
the  drawer. 

(2)  Acceptor's  admission  of  the  drawer's  signature.     A 
drawee  by  accepting  admits  the  signature  to  the  bill  to  be 
the  genuine  signature  of  the  drawer  and  not  a  forgery.    But 
he  does  not  admit  that  the  body  of  the  bill  has  not  been 
altered  between  the  time  of  drawing  and  accepting.    Thus, 
if  A  forges  B's  signature  as  drawer  to  a  bill  drawn  on  C, 
inserting  his  own  as  payee,  and  negotiates  the  instrument 
to  D,  who  pays  value  in  good  faith,  and  C  accepts  the  bill 
in  ignorance  of  the  forgery,  D  may  recover  from  C  on  his 
acceptance.    But  had  B  drawn  a  genuine  bill  on  C  payable 
to  A,  and  had  A  altered  it  by  raising  the  amount,  in  such 
a  case  C's  subsequent  acceptance  would  not  bind  him,  and 
D,  the  innocent  purchaser,  could  not  recover  against  him 
on  his  acceptance.    In  other  words,  the  acceptor  admits  the 
genuineness  of  the  signature  but  not  the  genuineness  of  the 
body  of  the  bill.    A  striking  illustration  of  this  rule  is  the 


178       THE  LAW  OF  COMMERCIAL  PAPER 

case  of  the  National  Park  Bank  v.  National  Bank.  A  bill 
was  drawn  by  the  Ridgely  Bank  of  Illinois  on  the  National 
Park  Bank,  payable  to  one  Shirly.  The  draft  was  stolen, 
the  name  of  the  payee  changed,  the  amount  raised  from 
$14.20  to  $6,300,  and  the  signature  of  the  drawer  erased 
and  then  rewritten  as  before.  The  instrument  was  then 
negotiated  to  the  Ninth  National  Bank,  which  paid  value 
for  it  in  good  faith.  Thereafter,  it  was  accepted  by  the  Park 
Bank.  It  was  conceded  that  the  Park  Bank  would  not 
have  been  bound  by  its  acceptance  if  the  only  alteration 
had  been  as  to  the  payee  and  amount,  for  its  acceptance 
admitted  the  genuineness  of  the  drawer's  signature  only. 
But  the  drawer's  signature  was  not  genuine.  It  had  been 
erased  and  rewritten.  In  consequence,  the  Court  held  the 
Park  Bank  bound  to  pay ;  for  the  bill  had  not  been  altered 
since  the  signature,  which  its  acceptance  admitted  to  be 
genuine,  had  been  attached  to  the  instrument.  The  Court 
said:  "For  more  than  a  century  it  has  been  held  and 
decided,  without  question,  that  it  is  incumbent  upon  the 
drawee  of  a  bill  to  be  satisfied  that  the  signature  of  the 
drawer  is  genuine,  that  he  is  presumed  to  know  the  hand- 
writing of  his  correspondent,  and,  if  he  accepts  or  pays  a 
bill  to  which  the  drawer's  name  has  been  forged,  he  is 
bound  by  the  act,  and  can  neither  repudiate  the  acceptance 
nor  recover  the  money  paid." 

Not  only  does  the  admission  of  the  acceptor  not  extend  to 
the  face  of  the  instrument,  but  it  does  not  extend  to  the 
genuineness  of  the  indorsements.  The  drawee  of  a  bill 
payable  to  order  is  bound  by  his  acceptance  to  pay  the 
payee  or  his  order,  but  no  one  else.  If  the  payee's  indorse- 
ment is  forged,  .the  instrument  is  not  transferred  and  the 
payee  is  not  deprived  thereby  of  his  right  to  receive  pay- 
ment. It  makes  no  difference  in  the  application  of  this 
rule  that  the  drawee  accepted  the  instrument  after  the 


CHECKS  179 

forgery  of  the  payee's  indorsement,  and  that  the  holder 
purchased  innocently  after  the  drawee  had  placed  his  ac- 
ceptance on  the  bill.  The  acceptor  does  not  admit  the 
genuineness  of  the  indorsements.  He  promises  to  pay  the 
legal  holder  of  the  bill  at  maturity. 


CHECKS 

Checks — certification. — Section  112.  A  check  is  a  bill  of 
exchange  drawn  on  a  bank  and  payable  on  demand.  (Neg. 
Inst.  Law,  §  184.)  If  this  were  all  it  would  not  be  neces- 
sary to  say  anything  further  about  checks.  We  could 
apply  to  them  the  rules  we  found  applicable  to  bills 
of  exchange  payable  on  demand.  But  there  are  sev- 
eral peculiarities  of  checks.  In  the  first  place,  like  a  bill 
payable  on  demand,  a  check  cannot  be  accepted.  But  cus- 
tom and  the  Negotiable  Instruments  Law  (§  186)  have 
recognized  what  is  called  the  certification  of  a  check.  Cer- 
tification has  the  effect  of  acceptance  in  this :  by  certifying 
a  check  the  drawee  bank  becomes  liable  to  the  holder.  But 
it  discharges  the  drawer  and  the  indorsers  prior  to  the 
holder  at  whose  request  the  bank  makes  the  certification. 
However,  if  the  drawer  himself,  before  he  delivers  the 
check  to  the  payee,  secures  the  certification,  he  remains 
liable  as  drawer  notwithstanding.  And  all  indorsers  who  in- 
dorse after  the  certification  are  liable  as  such. 

Checks — presentment. — Section  113.  In  the  next  place, 
unlike  a  bill  payable  on  demand,  a  check  need_not_.be  pre- 
sented for  payment  within  a  reasonable  time  in  order  to 
hold  the  drawer,  although  it  must  be  in  order  to  hold  the 
indorsers.  But  if  loss  falls  upon  the  drawer  by  reason 
of  the  failure  of  the  holder  to  present  within  a  reasonable 
time,  then  the  drawer  is  discharged  to  the  extent  of  his 
loss.  Thus,  if  a  holder  delays  presentment  beyond  a  rea- 


i So       THE  LAW  OF  COMMERCIAL  PAPER 

sonable  time  and  in  the  meantime  the  drawee  bank  fails, 
paying  25%  to  its  depositors,  the  drawer  is  discharged 
to  the  extent  of  75%  of  the  face  of  the  check.  What  is  a 
reasonable  time  within  which  to  present  a  check  within  this 
rule  is  a  question  to  which  usage  has  given  a  more  definite 
answer  than  in  the  case  of  other  kinds  of  bills.  In  Grange 
v.  Reigh  (99  Wis.  552),  for  example,  it  appeared  that  the 
defendants,  after  banking  hours  on  July  20,  drew  and  de- 
livered to  plaintiff  in  Milwaukee,  where  plaintiff  resided, 
a  check  for  $1,211  upon  the  South  Side  Savings  Bank,  lo- 
cated in  Milwaukee.  The  check  was  not  presented  on  July 
21,  during  all  of  which  day  the  bank  was  open  and  would 
have  paid  the  check  had  it  been  presented.  The  bank 
failed  and  did  not  open  after  July  21,  by  reason  of  which 
the  check  was  not  paid.  In  holding  that  the  loss  by  reason 
of  the  bank's  failure  must  fall  upon  the  plaintiff,  the  court 
said:  "The  settled  law  applicable  to  the  facts  of  this  case 
is  that,  if  a  person  receives  a  check  on  a  bank,  he  must 
present  it  for  payment  within  a  reasonable  time,  in  order 
to  preserve  the  right  of  recourse  on  the  drawer  in  case 
of  nonpayment  by  the  drawee ;  and  that,  when  such  person 
resides  and  receives  the  check  at  the  same  place  where  such 
bank  is  located,  a  reasonable  time  for  such  presentation 
reaches,  at  the  latest,  only  to  the  close  of  banking  hours 
on  the  succeeding  day,  excluding  Sundays  and  holidays. 
Plaintiff  failed  to  comply  with  the  law  in  this  respect ;  hence 
defendants  were  discharged  from  all  liability  to  answer  for 
the  fault  of  the  bank." 

With  respect  to  indorsers  also  a  check  must  be  presented 
more  promptly  than  other  bills.  When  the  parties  all  reside 
in  the  same  place,  the  holder  should  present  the  check  on 
the  day  it  is  received  or  on  the  following  day,  and  when 
payable  at  a  different  place  from  that  in  which  it  is  nego- 


DISCHARGE  181 

tiated,  the  check  should  be  forwarded  by  mail  on  the  same 
or  the  next  succeeding  day  for  presentment. 


DISCHARGE 

Discharge  in  general. — Section  114.  When  a  negotiable 
instrument  becomes  due  it  ought  to  be  paid,  and  if  it  is  not 
it  is  discredited.  However,  the  maker  or  acceptor  remains 
liable  and  so  also  the  drawer  and  indorsers,  provided  there 
have  been  due  presentment  and  regular  proceedings  on  dis- 
honor. The  holder  of  the  instrument  at  maturity,  in  the 
event  that  neither  the  acceptor,  maker,  drawer,  or  indorsers 
pay  the  amount  due  upon  it,  is  not  obliged  to  bring  an  ac- 
tion on  the  instrument.  The  bill  or  note,  although  dis- 
honored, continues  transferable.  A  transferee,  although 
he  cannot  be  a  holder  in  due  course,  does  obtain  the  same 
rights  as  his  transferor  had,  that  is,  he  takes  the  instrument 
subject  to  the  defenses  against  it,  if  any.  Thus,  a  nego- 
tiable instrument  after  maturity  ceases  to  be  a  mercantile 
substitute  for  money,  but  the  obligations  of  the  parties  to 
it  continue  unaffected.  How,  then,  are  these  obligations 
discharged?  Before  answering  we  must  distinguish  be- 
tween an  act  which  discharges  the  instrument,  viz.,  the 
obligations  of  all  the  parties  on  the  instrument,  and  an 
act  which  discharges  one  or  some  only  of  all  the  parties. 
First,  as  to  acts  which  discharge  the  instrument,  of  which 
the  principal  are:  (i)  Payment;  (2)  Cancelation;  (3) 
Alteration;  and  (4)  Renunciation. 

Payment. — Section  115.  Payment  to  operate  as  a  dis- 
charge of  an  instrument  must  be  made  (a)  by  the  maker 
or  acceptor;  (b)  at  or  after  maturity;  (c)  to  the  holder  or 
his  agent. 

Payment  by  the  drawer  or  one  of  the  indorsers  does  not 


182       THE  LAW  OF  COMMERCIAL  PAPER 

discharge  the  instrument.  To  have  such  effect  the  payment 
must  be  by  the  party  primarily  liable,  i.  e.,  the  maker  or 
acceptor.  The  effect  of  such  a  payment  will  be  considered 
below.  The  payment  must  be  by  the  maker  or  acceptor  at 
or  after  maturity.  For  example,  the  acceptor  of  a  bill  pay- 
able on  June  I,  1911,  pays  it  to  the  holder  on  May  I,  1911, 
receives  the  instrument  from  the  holder,  and  then  nego- 
tiates it  before  maturity  to  X,  an  innocent  holder  for  value. 
X  may  recover  on  the  bill  against  both  the  acceptor  himself, 
the  drawer,  and  the  indorsers.  Of  course,  however,  if  X 
had  purchased  the  bill  from  the  acceptor  after  its  maturity 
on  June  I,  1911,  X  could  not  recover  against  the  drawer 
and  indorsers.  The  possession  of  the  paid  bill  by  the  ac- 
ceptor on  the  day  of  maturity  would  be  equivalent  to  a 
payment  by  him  on  that  day.  Again,  suppose  in  the  above 
case  that  the  holder  had  not  surrendered  the  paper  to  the 
acceptor  upon  payment,  and  had  subsequently  transferred 
it  to  X,  an  innocent  purchaser,  before  maturity.  X  could 
recover  from  the  acceptor  and  the  other  parties,  who  would 
thus  be  compelled  to  pay  the  bill  a  second  time.  The  pay- 
ment was  not  at  or  after  maturity.  Of  course,  the  holder 
could  not  have  recovered  a  second  time  from  the  acceptor, 
and  had  X  bought  after  maturity  he  would  have  held  sub- 
ject to  the  defense  that  the  bill  had  been  once  paid.  "Pay- 
ment means  payment  in  due  course,  and  not  by  anticipa- 
tion. Had  the  bill  been  due  before  it  came  into  the  plain- 
tiff's hands,  he  must  have  taken  it  with  all  its  infirmities. 
In  that  case,  it  would  have  been  his  business  to  inquire 
minutely  into  its  origin  and  history.  But,  receiving  it 
before  it  was  due,  there  was  nothing  to  awaken  his  sus- 
picion. I  agree  that  a  bill  paid  at  maturity  cannot  be 
reissued,  and  that  no  action  can  afterward  be  maintained 
upon  it  by  a  subsequent  indorsee.  A  payment  before  it 
becomes  due,  however,  I  think  does  not  extinguish  it  any 


DISCHARGE  183 

more  than  if  it  were  merely  discounted."     (Burbridge  v. 
Manners,  3  Camp.  193.) 

The  payment  must  be  made  not  only  by  the  acceptor  or 
maker  at  or  after  maturity,  but  to  the  holder  or  his  agent. 
Thus,  payment  made  by  an  acceptor  or  maker  to  a  person 
in  possession  of  an  instrument  under  a  forged  indorsement 
does  not  discharge  the  instrument,  but  the  holder  from 
whom  the  instrument  has  been  stolen  and  whose  indorse- 
ment has  been  forged  can  recover  upon  the  instrument 
from  the  maker  or  acceptor  and  any  other  parties  to  the 
paper.  Thus,  if  you  are  the  holder  to  whom  a  note  has 
been  specially  indorsed,  and  a  thief  steals  it  from  you,  and 
after  forging  your  indorsement,  sells  it  to  X,  an  innocent 
purchaser,  payment  to  X  will  not  deprive  you  of  your  rights 
against  the  -maker  and  indorsers.  Of  course,  if  the  instru- 
ment were  payable  to  bearer,  any  person  in  possession  of 
the  instrument  would  be  the  holder,  and  a  payment  to  him 
would  discharge  the  paper  and  extinguish  your  rights 
against  all  the  parties. 

Cancelation.— Section  116.  If  the  holder,  with  the  in- 
tention of  extinguishing  the  instrument,  cancels  it  by  draw- 
ing lines  through  it,  or  by  erasing  the  writing  or  signature 
of  the  maker  or  acceptor,  or  by  tearing  or  mutilating  the 
paper,  all  the  parties  are  discharged.  Negotiable  Instru- 
ments Law,  §  122,  provides : 

"A  cancelation  made  unintentionally,  or  under  a  mis- 
take, or  without  the  authority  of  the  holder,  is  inoperative ; 
but  where  an  instrument  or  any  signature  thereon  appears 
to  have  been  canceled  the  burden  of  proof  lies  on  the  party 
who  alleges  that  the  cancelation  was  made  unintentionally, 
or  under  a  mistake,  or  without  authority." 

Alteration. — Section  117.    An  alteration  is  any  material 


i84       THE  LAW  OF  COMMERCIAL  PAPER 

change  in  the  terms  of  the  instrument.  Unlike  a  cancela- 
tion,  it  discharges  the  paper  and  all  the  parties  on  it,  even 
though  it  is  made  by  a  stranger  and  against  the  will  of  the 
holder.  It  is  provided,  however,  that  if  an  instrument  is 
negotiated  after  alteration  to  a  holder  in  due  course,  who 
knows  nothing  of  the  alteration,  he  may  recover  on  the 
instrument  according  to  its  terms  before  alteration.  Nego- 
tiable Instruments  Law,  §123,  enacts: 

"Where  a  negotiable  instrument  is  fraudulently  or  mate- 
rially altered  without  the  assent  of  all  parties  liable  thereon, 
it  is  avoided,  except  as  against  a  party  who  has  himself 
made,  authorized,  or  assented,  orally  or  in  writing,  to  the 
alteration  and  subsequent  indorsers.  But  when  an  instru- 
ment has  been  materially  altered  and  is  in  the  hands  of  a 
holder  in  due  course,  not  a  party  to  the  alteration,  he  may 
enforce  payment  thereof  according  to  its  original  tenor." 

For  example :  The  thief  of  a  bearer  instrument  raises  it 
from  $1,000.00  to  $10,000.00,  and  sells  it  to  a  holder  in 
due  course.  The  holder  in  due  course  can  recover  $1,000.00 
on  the  paper. 

Negotiable  Instruments  Law,  §  124,  specifies  as  follows 
the  alterations  which  are  material : 

"Any  alteration  which  changes : 

1.  The  date; 

2.  The  sum  payable,  either  for  principal  or  interest; 

3.  The  time  or  place  of  payment; 

4.  The  number  or  the  relation  of  the  parties ; 

5.  The  medium  or  currency  in  which  payment  is  to  be 
made; 

Or  which  adds  a  place  of  payment  where  no  place  of 
payment  is  specified,  or  any  other  change  or  addition  which 


DISCHARGE  185 

alters  the  effect  of  the  instrument  in  any  respect,  is  a  ma- 
terial alteration/* 

Renunciation. — Section  1 18.  "An  absolute  and  uncondi- 
tional renunciation  of  his  (the  holder's)  rights  against  the 
principal  debtor  (maker  or  acceptor)  made  at  or  after  the 
maturity  of  the  instrument,  discharges  the  instrument,"  and 
the  liabilities  of  all  parties  thereon.  "A  renunciation  must 
be  in  writing,  unless  the  instrument  is  delivered  up  to  the 
person  primarily  liable  (maker  or  acceptor)  thereon." 
(Neg.  Inst.  Law,  §  121.)  Since  such  a  renunciation  may 
be  made  only  at  or  after  maturity,  an  innocent  purchaser, 
even  though  he  bought  without  notice,  would  get  no  rights 
because  he  would  not  be  a  holder  in  due  course. 

Discharge  of  drawer  and  indorsers. — Section  119.  The 
drawer  or  an  indorser  of  a  negotiable  instrument,  unlike 
the  maker  or  acceptor,  may  be  discharged  without  the  in- 
strument itself  being  discharged.  The  discharge  of  such 
a  party  is  effected  in  several  ways  of  which  the  following 
are  the  more  important:  (i)  Payment  by  him;  (2)  Can- 
celation  of  his  signature  by  the  holder;  (3)  Renunciation; 
and  (4)  Discharge  of  a  prior  party. 

Payment  by  drawer  or  indorser. — Section  120.  Pay- 
ment of  a  negotiable  instrument  to  the  holder  by  the  drawer 
or  an  indorser  discharges  the  liability  of  the  person  making 
the  payment,  but  does  not  discharge  the  maker  or  acceptor 
or  the  indorsers  prior  to  the  person  making  the  payment. 
Upon  his  payment  he  is  entitled  to  receive  the  instrument 
from  the  holder,  and  to  enforce  it  against  the  prior  parties, 
or,  if  he  wishes,  to  transfer  it  by  way  of  sale  or  gift. 
The  Negotiable  Instruments  Law  provides: 

"§  1 20.'  Where  the  instrument  is  paid  by  a  party  sec- 
ondarily liable  thereon,  it  is  not  discharged;  but  the  party 


186       THE  LAW  OF  COMMERCIAL  PAPER 

so  paying  it  is  remitted  to  his  former  rights  as  regards  all 
prior  parties ;  and  he  may  strike  out  his  own  and  all  subse- 
quent indorsements,  and  again  negotiate  the  instrument." 

p 

For  example,  C  sells  property  worth  $100  to  B,  taking 
in  payment  a  note  of  $100  made  by  A  payable  to  B,  in- 
dorsed by  B  to  C.  C  indorses  the  note  to  D.  A  does 
not  pay  at  maturity,  and  C  is  compelled  to  pay  D.  C  can 
enforce  the  instrument  against  A  or  B.  The  instrument 
is  not  discharged,  because  the  absolute  and  unconditional 
promise  of  the  acceptor  or  maker  to  pay  has  not  been  ful- 
filled by  the  indorsees  payment  in  satisfaction  of  his  own 
obligation  to  pay  if  the  maker  or  acceptor  does  not.  The 
prior  indorsers  are  not  discharged,  because  they  have  as- 
sumed an  obligation  to  every  subsequent  holder  to  pay  if 
the  maker  did  not,  and  he  has  not  paid.  The  indorser 
who  has  paid  and  received  the  instrument  is  entitled  to  en- 
force it  against  the  prior  parties,  or  to  transfer  it,  because 
he  has  become  the  holder.  The  indorser  who  had  taken  up 
the  instrument  cannot  enforce  it  against  indorsers  subse- 
quent to  himself.  In  the  example  above,  had  the  holder 
D  secured  payment  from  the  first  indorser  B,  instead  of 
from  the  second  C,  B  would  have  no  rights  against  C.  To 
allow  B  to  pursue  C  on  the  instrument  would  be  futile; 
for  were  C  compelled  to  pay,  he  could  turn  about,  and,  as 
we  have  seen,  under  the  general  rule  that  prior  indorsers 
are  not  discharged,  compel  B  to  repay  him. 

Cancellation  of  drawer's  or  indorser 's  signature. — Sec- 
tion 121.  If  the  holder  cancels  the  drawer's  or  indorsees 
signature  with  the  intention  of  discharging  the  person 
whose  signature  he  strikes  out,  that  person  is  discharged, 
but  the  maker  or  acceptor  and  the  indorsers  prior  to  the 
indorser  whose  signature  was  canceled  continue  liable  on 
the  paper. 


DISCHARGE  187 

denunciation. — Section  122.  Instead  of  renouncing  his 
rights  against  the  maker  or  acceptor  and  thus  discharging 
the  instrument  and  the  liabilities  of  all  the  parties  to  it,  the 
holder  may  renounce  his  rights  against  the  dra\ver  or  any 
indorser.  The  renunciation  must  be  in  writing  or  the  in- 
strument must  be  delivered  up  to  the  party  against  whom 
the  holder  has  renounced  his  rights.  The  renunciation  may 
be  either  before,  at,  or  after  maturity.  Of  course,  if  it  is 
made  before  maturity,  the  renunciation  will  not  affect  the 
rights  of  a  holder  in  due  course.  (Neg.  Inst.  Law  §  121.) 

Discharge  of  prior  party. — Section  123.  We  have  no- 
ticed many  times  that  any  act  which  discharges  the  liability 
of  the  maker  of  a  note  or  the  acceptor  of  a  bill,  discharges 
all  of  the  other  parties.  This  is  because  any  indorser  upon 
paying  the  instrument  to  the  holder  is  entitled  to  reimburse 
himself  from  the  maker  or  acceptor.  If  the  holder  by  his 
acts  discharges  the  maker  or  acceptor,  thus  destroying  the 
indorser's  right  to  recover  from  the  maker  or  acceptor,  it 
would  be  unjust  to  allow  the  holder  to  compel  the  indorser 
to  pay.  The  same  reasoning  applies  to  the  discharge  of 
the  drawer  or  prior  indorsers  by  the  holder.  For  example : 
E  is  the  holder  of  a  note  of  which  the  maker  is  A,  the 
payee  and  first  indorser  B,  the  second  indorser  C,  and  the 
third  D.  If  E  compelled  D  to  pay,  D  might  look  for  reim- 
bursement to  A,  B,  or  C.  If  E  discharged  A  by  canceling 
his  signature  before  he  sued  D,  it  would  be  unjust  to  let 
E  recover  from  D.  For  the  same  reason  it  would  be  un- 
just to  let  him  recover  from  B  or  C.  E  has  destroyed  their 
right  to  look  to  the  maker  A  for  the  ultimate  payment  of 
the  instrument.  Again :  if  E  discharged  C  by  canceling  his 
signature,  this  would  destroy  E's  rights  against  D,  who  is 
subsequent  to  C,  but  would  not  destroy  his  rights  against 
A  or  B,  because  they  are  prior  to  C,  and  under  no  circum- 


i88       THE  LAW  OF  COMMERCIAL  PAPER 

stances  could  they  look  to  C  for  reimbursement  in  case 
they  were  compelled  to  pay  the  holder. 

The  consequence  is  that  there  is  a  general  rule  that  any 
act  of  the  holder  which  discharges  a  prior  party,  discharges 
all  subsequent  parties.  The  Negotiable  Instruments  Law, 
§  119,  specifies  the  cases  in  which  a  drawer  or  indorser  is 
discharged.  All  the  cases  mentioned  are  the  results  of  the 
application  of  the  general  rule  just  stated,  except  subdivi- 
sions 3  and  5.  These  subdivisions,  especially  5,  state 
important  rules  which  should  be  remembered.  A  valid 
agreement  to  extend  the  time  of  payment  made  between 
the  maker  or  acceptor  and  the  holder,  or  between  a  prior 
indorser  and  the  holder,  discharges  all  subsequent  in- 
dorsers. 


APPENDIX  I 
UNIFORM  NEGOTIABLE  INSTRUMENTS   LAW 

Note:  The  draft  following  is  the  uniform  law  as  found  in  the 
statutes  of  Illinois,  and  is  typical  of  the  act  as  found  in  most 
of  the  forty-three  states  that  have  adopted  it.  In  some  states, 
notably  Wisconsin,  the  original  draft  of  the  Negotiable  In- 
struments Law  has  been  adopted  with  amendments  made  in 
order  to  codify  some  case  law  on  negotiable  instruments  obtain- 
ing in  the  particular  state  at  the  time  of  enactment  but  which 
was  inconsistent  with  the  original  draft.  These  changes  in  some 
cases  have  been  very  minor  and  in  others  very  basic,  but  the 
accumulation  of  revisions  is  not  sufficient  to  change  the  force 
of  the  act  as  a  whole.  The  text  of  the  Wisconsin  act  is  also 
included  in  this  appendix  as  an  example  of  some  of  the  typical 
modifications  from  the  original  draft  of  the  Uniform  Negoti- 
able Instruments  Law. 


Laws  of  Illinois  Relating  to  Negotiable  Instruments  In  Force 
July  i,  1913.  Published  by  Lewis  G.  Stevenson,  Secretary  of 
State. 

NEGOTIABLE    INSTRUMENTS 
ACT  OF  1874  WITH  ADDITIONS  AND  AMENDMENTS 
[REVISED  STATUTES,  CHAPTER  98,  PARAGRAPHS  3-18] 


§  I.    Repealed. 

§  2.    Repealed. 

§  3.    Effect  of  notes,  etc. 

§  4.  Notes,  etc.,  assignable  by 
indorsement. 

§  5.    Suit  by  assignee. 

§  6.  Payment  after  notice  of 
assignment. 

§  7.  Rights  of  holders — liabil- 
ity of  assignor. 

§  7a.  All  persons  liable  may  be 
sued  in  one  action. 

§  7b.  How  judgment  shall  be 
entered. 

§  7c.  When  drawer  or  endor- 
ser pays  judgment — 
proceedings  as  to  oth- 
ers. 


§  7d.  Proceeding  when  all  the 
defendants  have  not 
been  served. 

§    &  Repealed. 

§    9.  Failure  of  consideration. 

§  10.  Fraud. 

§11.  Defense. 

§  12.  Set-off. 

§  13.  Payment  before  assign- 
ment. 

§  14.  Lost  instruments. 

§15.  Days  of  grace. 

§  16.  Time. 

§  17.  Holidays. 

§  18.  Check,  etc.,  for  labor 
payable  in  bankable 
currency — penalty. 


AN  ACT  to  revise  the  law  in  relation  to  promissory  notes,  bonds, 
due  bills  and  other  instruments  in  writing.  [Approved 
March  18,  1874.] 

*  i.    REPEALED.     Sec.  196,  Act  of  1907. 

*The  first  number  preceding  each  section  is  the  paragraph 
number  of  Chap.  98,  Rev.  Stat. 


192        THE  LAW  OF  COMMERCIAL  PAPER 

2.  REPEALED.    Sec.  196,  Act  of  1907. 

3.  §  3.  All  promissory  notes,  bonds,  due  bills  and  other  in- 
struments in  writing,  made  or  to  be  made,  by  any  person,  body 
politic  or  corporate,  whereby  such  person  promises  or  agrees 
to  pay  any  sum  of  money  or  articles  of  personal  property,  or 
any  sum  of  money  in  personal  property,  or  acknowledges  any 
sum  of  money  or  article  of  personal  property  to  be  due  to  any 
other  person,  shall  be  taken  to  be  due  and  payable,  and  the  sum 
of  money  or  article  of  personal  property  therein  mentioned 
shall,  by  virtue  thereof,  be  due  and  payable  as  therein  ex- 
pressed.   [R.  S.  1845,  P-  384>  §  3-    Easter  et  al.  v.  Boyd,  79  111., 
325;  White  v.  Smith,  77  111.,  351;  Wickencamp  v.  Wickencamp, 
77  111.,  92;  Tooke  et  ux.  v.  Newman  et  al.,  75  111.,  215;  First 
Nat'l  Bank  of  Centralia  v.  Strang  et  al.,  72  111.,  559;  King  v. 
Fleming,   72  111.,  21;   Melvin   et  al.  v.   Hodges,   71   111.,  422; 
Hollida  v.  Hunt,  70  111.,  109;  Blanchard  v.  Williamson,  70  111., 
647;  Seibel  v.  Vaughn,  69  111.,  257;  Massie  v.  Belford,  68  111., 
290. 

4.  §  4.  Any  such  note,  bond,  bill,  or  other  instrument  in 
writing,  made  payable  to  any  person  named  as  payee  therein, 
shall  be  assignable,  by  indorsement  thereon,  under  the  hand 
of  such  person,  and  of  his  assignees,  in  the  same ,. manner  as 
bills  of  exchange  are,  so  as  absolutely  to  transfer  and  vest  the 
property  thereof  in  each  and  every  assignee  successively.  [See 
"R.  R.  and  W."  ch.  114,  §  142.    R.  S.  1845,  P-  384*  §  4-    Palmer 
v.  Gardiner  et  al.,  77  111.,  143;  Dempster  v.  West,  69  111.,  613; 
Kingsbury  v.  Wall,  68  111.,  311;  Newell  v.  School  Directors,  68 
111.,  514;  Badgley  v.  Votrain,  68  111.,  25;  Padfield  v.  Padfield, 
68  111.,  210. 

5.  §  5.  Any  assignee  to  whom  such  sum  of  money  or  per- 
sonal property  is,  by  such  indorsement  or  indorsements,  made 
payable,  or  in  case  of  the  death  of  such  assignee,  his  executor 
or  administrator,  may,  in  his  own  name,  institute  and  maintain 
the  same  kind  of  action  for  the  recovery  thereof,  against  the 
person  who  made  and  executed  any  such  note,  bond,  bill  or 
other  instrument  in  writing,  or  against  his  heirs,  executors  or 
administrators,  as  might  have  been  maintained  against  him  by 
the  obligee  or  payee,  in  case  the  same  had  not  been  assigned; 


APPENDIX  193 

and  in  every  such  action,  in  which  judgment  shall  be  given  for  the 
plaintiff,  he  shall  recover  his  damages  and  costs  of  suit,  as  in 
other  cases.  [R.  S.  1845,  P-  3^5,  §  5-  White  v.  Smith,  77  111., 
351;  Best  v.  Nokomis  National  Bank,  76  111.,  609;  Stevenson 
v.  O'Neil  et  al.,  71  111..  314;  Belohradsky  v.  Kuhn,  69  111.,  547; 
McFarland  v.  Dey,  69  111.,  419;  Thompson  v.  Shoemaker,  68 
111.,  256. 

6.  §  6.  No  maker  of  any  such  note,  bond,  bill,  or  other  in- 
strument in  writing,  or  other  person  liable  thereon,  shall  be 
allowed  to  allege  payment  to  the  payee,  made  after  notice  of 
assignment,  as  a  defense  against  the  assignee.     [R.  S.  1845, 

P.  385,  §  6. 

7.  §  i.  The  rights  of  the  lawful  holders  of  promissory  notes 
payable  in  money  and  the  liability  of  all  parties  to  or  upon  said 
notes  shall  be  the  same  as  that  of  like  parties  to  inland  bills  of 
exchange  according  to  the  custom  of  merchants.     Every  as- 
signor of  every  other  note,  bond,  bill  or  other  instrument  in 
writing  mentioned  in  section  III  of  this  Act  shall  be  liable  to 
the  action  of  the  assignee  or  lawful  holder  thereof,  if  such  as- 
signee or  lawful  holder  shall  have  used  due  diligence  by  the  in- 
stitution and  prosecution  of  a  suit  against  the  maker  thereof, 
for  the  recovery  of  the  money  or  property  due  thereon,  or 
damages  in  lieu  thereof.     But  if  the  institution  of  such  suit 
would  have  been  unavailing,  or  the  maker  had  absconded  or 
resided  without  or  had  left  the  State  when  such  instrument  be- 
came due,  such  assignee  or  holder  may  recover  against  the  as- 
signor as  if  due  diligence  by  suit  had  been  used.     [As  amended 
by  Act  of  June  4,  1895. 

7a.  §  2.  Persons  severally  liable  upon  bills  of  exchange  or 
promissory  notes,  payable  in  money,  may  all  or  any  of  them 
severally  be  included  in  the  same  suit  at  the  option  of  the 
plaintiff,  and  judgment  rendered  in  said  suit  shall  be  without 
prejudice  to  the  rights  of  the  several  defendants  as  between 
themselves.  [Added  by  Act  of  June  4,  1895. 

7b.  §  3,  In  any  suit  mentioned  in  the  preceding  section  a 
separate  judgment  may  be  entered  by  default  against  any  de- 
fendant or  defendants  severally  liable  who  have  been  duly 
served  with  summons,  and  against  whom  the  plaintiff  would 


194       THE  LAW  OF  COMMERCIAL  PAPER 

have  been  entitled  to  judgment  had  the  suit  been  against  such 
defendant  or  defendants  only.  The  suit  shall  thereby  be  severed, 
and  shall  proceed  to  trial  against  the  other  party  or  parties  in 
the  same  manner  as  if  (it)  had  been  commenced  against  such 
other  party  or  parties  only,  and  if  the  plaintiff  recover,  judg- 
ment shall  be  entered  against  such  one  or  more  of  the  de- 
fendants as  are  found  liable  to  him,  but  in  no  event  shall  the 
plaintiff  be  entitled  to  more  than  one  satisfaction.  [Added  by 
Act  of  June  4,  1895. 

7c.  §  4.  Whenever  the  drawer  or  endorser  of  an  accepted 
bill  of  exchange  or  the  endorser  or  guarantor  of  a  promissory 
note  shall  have  been  joined  with  the  acceptor  of  said  bill  or  the 
maker  of  said  note  in  a  suit  to  enforce  the  collection  thereof, 
and  judgment  has  been  recovered  against  any  such  drawer,  en- 
dorser or  guarantor  who  shall  thereafter  pay  the  same,  the  per- 
son so  paying  shall  be  entitled  to  have  the  judgment  released 
as  to  him,  but  the  same  shall,  at  his  option,  stand  and  may  be 
enforced  by  execution  under  the  order  of  the  court  against  any 
other  party  thereto  who  remains  liable  to  the  party  paying  as 
upon  said  bill  or  note,  for  the  reimbursement  of  the  party  so 
paying.  If  there  be  any  contest  as  to  such  liability  the  court 
may  order  an  issue  to  be  made  up  between  the  contesting 
parties,  which  shall  be  summarily  determined  as  the  court  may 
direct.  [Added  by  Act  of  June  4,  1895. 

7d.  §  5.  In  all  suits  on  negotiable  instruments  where  any  of 
the  defendants  are  jointly  liable,  and  only  one  or  more,  but  not 
all  of  them  have  been  served  with  summons,  if  the  plaintiff  re- 
cover, judgment  shall  be  entered  in  form  against  all  the  de- 
fendants so  jointly  liable,  but  so  far  only  as  that  it  may  be  en- 
forced against  the  joint  property  of  all  and  the  separate  prop- 
erty of  the  defendants  served.  [Added  by  Act  of  June  4,  1895. 

8.  REPEALED.     Sec.  196,  Act  of  1907. 

9.  §  9.  In  any  action  upon  a  note,  bond,  bill,  or  other  in- 
strument in  writing,  for  the  payment  of  money  or  property,  or 
the  performance  of  covenants  or  conditions,  if  such  instru- 
ment was  made  or  entered  into  without  a  good  and  valuable 
consideration,  or,  if  the  consideration  upon  which  it  was  made 
or  entered  into  has  wholly  or  in  part  failed,  it  shall  be  lawful 


APPENDIX  195 

for  the  defendant  to  plead  such  want  of  consideration,  or  that 
the  consideration  has  wholly  or  in  part  failed;  and  if  it  shall 
appear  that  such  instrument  was  made  or  entered  into  without 
a  good  or  valuable  consideration,  or  that  the  consideration 
has  wholly  failed,  the  verdict  shall  be  for  the  defendant; 
and  if  it  shall  appear  that  the  consideration  has  failed 
in  part,  the  plaintiff  shall  recover  according  to  the  equity  of 
the  case:  Provided,  that  nothing  in  this  section  contained 
shall  be  construed  to  affect  or  impair  the  right  of  any  bona  fide 
assignee  of  any  instrument  made  assignable  by  this  Act,  when 
such  assignment  was  made  before  such  instrument  became  due. 
[R.  S.  1845,  P-  385»  §  I0-  Sturges  v.  Miller  et  al.,  80  111.,  241 ; 
Shreeves  v.  Allen,  79  111.,  553 ;  Winkelman  v.  Choteau  et  al.,  78 
111.,  107;  Nowak  v.  Excelsior  Stone  Co.,  78  111.,  307;  Paton  et 
al.  v.  Stewart,  78  111.,  481;  Holmes  v.  Shaver,  78  111.,  578; 
Cheney  v.  City  National  Bank  of  Chicago,  77  111.,  562;  Mann 
v.  Smyser  et  al.,  76  111.,  365 ;  Comstock  et  al.  v.  Hannah,  76  111., 
530;  Best  v.  Nokomis  National  Bank,  76  111.,  608. 

10.  §  10.  If  any  fraud  or  circumvention  be  used  in  obtain- 
ing the  making  or  executing  of  any  of  the  instruments  afore- 
said, such  fraud  or  circumvention  may  be  pleaded  in  bar  to  any 
action   to   be   brought   on   any   such   instrument   so   obtained, 
whether  such  action  be  brought  by  the  party  committing  such 
fraud  or  circumvention,  or  any  assignee  of  such  instrument. 
[R.  S.  1845,  P-  386,  §  ii.     Champion  v.  Ulmer,  70  111.,  322; 
Culver  v.  Hide  &  Leather  Bk.  of  Chicago,  78  111.,  625 ;  Neil  v. 
Cummings,  75  111.,  170. 

11.  §  ii.  If  any  such  note,  bond,  bill  or  other  instrument 
in  writing  shall  be  indorsed  after  the  same  becomes  due,  and 
any  indorsee  shall  institute  an  action  thereon  against  the  maker 
of  the  same,  the  defendant  being  maker  shall  be  allowed  to  set 
up  the  same  defense  that  he  might  have  done  had  the  action 
been  instituted  in  the  name  and  for  the  use  of  the  person  to 
whom  such  instrument  was  originally  made  payable,  or  any 
intermediate  holder.     [R.  S.  1845,  P-  3^5,  §  8.    Bissell  v.    cur- 
ran,  69  111.,  20. 

12.  §  12.  In  any  action  upon  a  note,  bond,  bill,  or  other  in- 


196       THE  LAW  OF  COMMERCIAL  PAPER 

strument  in  writing,  which  has  been  assigned  to  or  transferred 
by  delivery  to  the  plaintiff  after  it  became  due,  a  set-off  to  the 
amount  of  the  plaintiff's  debt  may  be  made  of  a  demand  exist- 
ing against  any  person  or  persons  who  shall  have  assigned  or 
transferred  such  instrument  after  it  became  due,  if  the  demand 
be  such  as  might  have  been  set-off  against  the  assignor,  while 
the  note  or  bill  belonged  to  him. 

J3-  §  J3-  If  any  such  note,  bond,  bill,  or  other  instrument 
of  writing,  shall  be  assigned  before  the  day  the  money  or  prop- 
erty therein  mentioned  becomes  due  and  payable,  and  the  as- 
signee shall  institute  an  action  thereon,  the  defendant  may  give 
in  evidence  at  the  trial  any  money  or  property  actually  paid  on 
the  said  note,  bond,  bill,  or  other  instrument  in  writing,  before 
the  said  note,  bond,  bill,  or  other  instrument  in  writing  was 
assigned  to  the  plaintiff,  on  proving  that  the  plaintiff  had  suffi- 
cient notice  of  the  said  payment  before  he  accepted  or  received 
such  assignment.  [R.  S.  1845,  P-  3^5,  §  9-  Nowak  v.  Excelsior 
Stone  Co.,  78  111.,  307. 

14.  §  14.  In  any  action  founded  upon  any  note,  bond,  bill, 
or  other  instrument  in  writing,  or  in  which  the  same,  if  pro- 
duced, might  be  allowed  as  a  set-off  in  defense,  if  it  shall  appear 
that   such   instrument  was  lost   while  belonging  to  the  party 
claiming  the  amount  due  thereon,  to  entitle  him  to  recover  upon 
or  set-off  the  same,  he  may,  in  the  discretion  of  the  court,  be 
required  to  execute  a  bond  to  the  adverse  party  in  a  penalty  at 
least  double  the  amount  of  such  note,  bill  or  instrument,  with 
sufficient  security,  to  be  approved  by  the  court  in  which  the  ac- 
tion is  pending,  conditioned  to  indemnify  the  adverse  party, 
his  heirs,  executors  and  administrators,  against  all  claims  by 
any  other  person  on  account  of  such  instrument,  and  against  all 
cost  and  expenses  by  reason  thereof. 

15.  §  15.  No  promissory  note,  check,  draft,  bill  of  exchange, 
order  or  other  negotiable  or  commercial  instrument,  shall  be 
entitled  to  days  of  grace,  but  shall  be  absolutely  payable  at 
maturity.     [As  amended  by  Act  approved  June  4,  1895.     1° 
force  July  I,  1895;  L.  1895,  P-  26l« 

1 6.  §  1 6.  In  all  computations  of  time,  and  of  interest  and 
discounts,  a  month   shall  be   considered  to  mean  a  calendar 


APPENDIX  197 

month,  and  a  year  shall  consist  of  twelve  calendar  months ;  and 
in  computations  of  interest  or  discounts  for  any  number  of 
days  less  than  a  month,  a  day  shall  be  considered  a  thirtieth 
part  of  a  month  and  interest  or  discounts  shall  be  computed  for 
such  fractional  parts  of  a  month  upon  the  ratio  which  such 
number  of  days  shall  bear  to  thirty.  [L.  1861,  p.  119,  §  3;  L. 
1865,  p.  128,  §  i. 

17.  §  17.  The    following  days,   to-wit:     The   first   day   of 
January,  commonly  called  New  Year's  Day,  the  twenty-second 
day  of  February,  the  thirtieth  day  of  May,  the  fourth  day  of 
July,  the  twelfth  day  of  October,  commonly  called  Columbus 
day,  the  twenty-fifth  day  of  December,  commonly  called  Christ- 
mas day,  the  first  Monday  in  September,  to  be  known  as  Labor 
day,    the    twelfth    day   of    February,    any   day    appointed    or 
recommended  by  the  Governor  of  this  State  or  by  the  President 
of  the  United  States  as  a  day  of  fast  or  thanksgiving,  and  in 
cities  of  200,000  inhabitants  or  more,  from  12  o'clock  noon  to 
12  o'clock  midnight  of  the  last  day  of  the  week,  commonly  called 
Saturday,  are  hereby  declared  to  be  legal  holidays  and  half 
holidays,  the  term  half  holidays  including  the  period  from  noon 
to  midnight  of  each  Saturday  which  is  not  a  holiday,  and  shall, 
for  all  purposes  whatsoever,  as  regards  the  presenting  for  pay- 
ment or  acceptance,  the  maturity  and  protesting  and  giving  no- 
tice of  the  dishonor  of  bills  of  exchange,  bank  checks  and 
promissory   notes   and   other   negotiable   or   commercial   paper 
or  instruments,  be  treated  and  is  considered  as  is  the  first  day 
of  the  week,  commonly  called  Sunday.     When  any  such  holi- 
days fall  on  Sunday,  the  Monday  next  following  shall  be  held 
and  considered  such  holiday.     All  notes,  bills,  drafts,  checks, 
or  other   evidence   of   indebtedness,    falling   due   or   maturing 
on  either  of  said  days,  shall  be  deemed  as  due  or  maturing  upon 
the  day  following,  and  when  two   (2)   or  more  of  these  days 
come  together,  or  immediately  succeeding  each  other,  then  such 
instruments,  paper  or  indebtedness  shall  be  deemed  as  due  or 
having  matured  on  the  day  following  the  last  of  such  days. 
[As  amended  by  Act  of  May  10,  1909. 

18.  §  i.  Be  it  enacted  by  the  People  of  the  State  of  Illinois 


198       THE  LAW  OF  COMMERCIAL  PAPER 

represented  in  the  General  Assembly:  That  any  time  check  or 
store  order,  issued  or  given  as  compensation  for  labor  per- 
formed, shall  be  redeemable  at  the  option  of  the  person  to 
whom  the  same  was  issued  or  given,  or  upon  his  written  order, 
in  bankable  currency.  Any  person  who  violates  this  Act  shall 
be  deemed  guilty  of  a  misdemeanor,  and  shall  be  punished  by  a 
fine  not  to  exceed  one  hundred  (100)  dollars  or  confined  in  the 
county  jail  not  to  exceed  thirty  (30)  days,  or  both,  in  the  dis- 
cretion of  the  court.  [Act  of  June  21,  1895. 


NEGOTIABLE  INSTRUMENTS 


ACT  OF  JUNE  5,  1907 
[REVISED  STATUTES,  CHAPTER  98,  PARAGRAPHS  19-214.] 


TITLE  I.    NEGOTIABLE  INSTRU- 
MENTS. 

Art.  I.  §§  1-23.  Form  and  in- 
terpretation. 

Art.  II.  §  §  24-29.  Considera- 
tion. 

Art.  III.  §  §  30-50.  Negotia- 
tion. 

Art.  IV.  §  §  51-59.  Rights  of 
the  holder. 

Art.  V.  §  §  60-69.  Liabilities  of 
parties. 

Art.  VI.  §  §  70-87.  Presenta- 
tion for  payment. 

Art.  VII.  §§  88-117.  Notice  of 
dishonor. 

Art.  VIII.  §§  118-124.  Dis- 
charge of  negotiable  instru- 
ments. 

TITLE  II.    BILLS  OF  EXCHANGE, 

Art.  I.  §§  125-130.  Form  and 
interpretation. 


Art.  II.  §§  131-141.  Accept- 
ance. 

Art.  III.  §§  142-150.  Presenta- 
tion for  payment. 

Art.  IV.  §§  151-159.  Protest. 

Art.  V.  §  §  160-169.  Acceptance 
for  honor. 

Art  VI.  §  §  170-176.  Payment 
for  honor. 

Art.  VII.  §  §  177-182.  Bills  in 
a  set. 


TITLE  III.    PROMISSORY  NOTES 
AND  CHECKS. 

Art.  I.  §§  183-188.    Form,    in- 
terpretation, acceptance,  etc. 


TITLE  IV.  GENERAL  PROVISIONS. 

Art.  I.  §§  189-196.  Definitions, 
etc.— repeal. 


199 


200       THE  LAW  OF  COMMERCIAL  PAPER 


AN  ACT  in  regard  to  negotiable  instruments  payable  in  money, 
[Approved  June  5, 


[TITLE  I.     NEGOTIABLE  INSTRUMENTS.] 

ARTICLE    I  —  FORM    AND    INTERPRETATION 

SECTION  i.  Be  it  enacted  by  the  People  of  the  State  of  Il- 
linois, represented  in  the  General  Assembly:  An  instrument 
payable  in  money,  to  be  negotiated,  must  conform  to  the  follow- 
ing requirements: 

1.  It  must  be  in  writing  and  signed  by  the  maker  or  drawer. 

2.  Must  contain  an  unconditional  promise  or  order  to  pay  a 
sum  certain  in  money. 

3.  Must  be  payable  on  demand  or  at  a  fixed  or  determinable 
future  time. 

4.  Must  be  payable  to  the  order  of  a  specified  person  or  to 
bearer;  and, 

5.  Where  the  instrument  is  addressed  to  a  drawee,  he  must 
be  named  or  otherwise  indicated  therein  with  reasonable  cer- 
tainty. 

§  2.  The  sum  payable  is  a  sum  certain  within  the  meaning 
of  this  Act,  although  it  is  to  be  paid: 

1.  With  interest;  or 

2.  By  stated  installments;  or 

3.  By  stated  installments,  with  a  provision  that  upon  default 
in  payment  of  any  installment,  or  of  interest  the  whole  shall  be- 
come due;  or 

4.  With  exchange,  whether  at  a  fixed  rate  or  at  the  current 
rate;  or 

5.  With  costs  of  collection  or  an  attorney's  fee,  in  case  pay- 
ment shall  not  be  made  at  maturity. 

§  3.  An  unqualified  order  or  promise  to  pay  is  unconditional 
within  the  meaning  of  this  Act,  though  coupled  with  : 

1.  An  indication  of  a  particular  fund  out  of  which  reimburse- 
ment is  to  be  made,  or  a  particular  account  to  be  debited  with 
the  amount;  or 

2.  A  statement  of  the  transaction  which  gives  rise  to  the 
instrument. 


APPENDIX  201 

But  an  order  or  promise  to  pay  out  of  a  particular  fund  is 
not  unconditional. 

§  4.  An  instrument  is  payable  at  a  determinable  future  time, 
within  the  meaning  of  this  Act,  which  is  expressed  to  be  pay- 
able: 

1.  At  a  fixed  period  after  date  or  sight;  or 

2.  On  or  before  a  fixed  or  determinable  future  time  specified 
therein;  or 

3.  On  or  at  a  fixed  period  after  the  occurrence  of  a  specified 
event,  which  is  certain  to  happen,  though  the  time  of  happen- 
ing be  uncertain. 

An  instrument  payable  upon  a  contingency  is  not  negotiable, 
andthe  happening  of  the  eygnt  does  not  cure  the  defect, 

§  5.  An  instrument  which  contains  an  order  or  promise  to 
do  an  act  in  addition  to  the  payment  of  money  is  not  negotiable 
under  this  Act  But  the  negotiable  character  of  an  instrument 
otherwise  negotiable  is  not  affected  by  a  provision  which : 

1.  Authorizes  the  sale  of  collateral  securities  in  case  the  in- 
strument be  not  paid  at  maturity;  or 

2.  Authorizes  a  confession  of  judgment;  or 

3.  Waives  the  benefit  of  any  law  intended  for  the  advantage 
or  protection  of  the  obligator;  or 

4.  Gives  the  holder  an  election  to  require  something  to  be 
done  in  lieu  of  payment  of  money. 

But  nothing  in  this  section  shall  validate  any  provision  or 
stipulation  otherwise  illegal  or  authorize  the  waiver  of  exemp- 
tions from  execution. 

§  6.  The  validity  and  negotiable  character  of  an  instrument 
are  not  affected  by  the  fact  that : 

1.  It  is  not  dated;  or 

2.  Does  not  specify  the  value  given,  or  that  any  value  has 
been  given  therefor;  or 

3.  Does  not  specify  the  place  where  it  is  drawn  or  the  place 
where  it  is  payable ;  or 

4.  Bears  a  seal;  or 

5.  Is  payable  in  currency  or  current  funds;  or  designates  a 
particular  kind  of  current  money  in  which  payment  is  to  be 
made. 


202       THE  LAW  OF  COMMERCIAL  PAPER 

§  7.  An  instrument  is  payable  on  demand: 

1.  Where  it  is  expressed  to  be  payable  on  demand,  or  at 
sight,  or  on  presentation;  or 

2.  In  which  no  time  for  payment  is  expressed. 

Where  an  instrument  is  issued,  accepted  or  indorsed  when 
overdue,  it  is,  as  regards  the  person  so  issuing,  accepting  or 
indorsing  it,  payable  on  demand. 

§  8.  The  instrument  is  payable  to  order  where  it  is  drawn  pay- 
able to  the  order  of  a  specified  person  or  to  him  or  his  order. 
It  may  be  drawn  payable  to  the  order  of: 

1.  A  payee  who  is  not  maker,  drawer  or  drawee;  or 

2.  The  drawer  or  maker;  or 

3.  The  drawee ;  or 

4.  Two  or  more  payees  jointly;  or 

5.  One  or  more  of  several  payees;  or 

6.  The  holder  of  an  office  for  the  time  being. 

7.  An  instrument  payable  to  the  estate  of  a  deceased  person 
shall  be  deemed  payable  to  the  order  of  the  administrator  or 
executor  of  his  estate. 

Where  the  instrument  is  payable  to  order,  the  payee  must  be 
named  or  otherwise  indicated  therein  with  reasonable  certainty. 
§  9.  The  instrument  is  payable  to  bearer: 

1.  When  it  is  expressed  to  be  so  payable;  or 

2.  When  it  is  payable  to  a  person  named  therein  or  bearer; 
or 

3.  When  it  is  payable  to  the  order  of  a  person  known  by  the 
drawer  or  maker  to  be  fictitious  or  non-existent  or  of  a  living 
person  not  intended  to  have  any  interest  in  it;  or 

4.  When  the  name  of  the  payee  does  not  purport  to  be  the 
name  of  any  person;  or 

5.  When  although  originally  payable  to  order,  it  is  indorsed 
in  blank  by  the  payee  or  a  subsequent  endorsee. 

§  10.  The  negotiable  instrument  need  not  follow  the  language 
of  this  Act,  but  any  terms  are  sufficient  which  clearly  indicate 
an  intention  to  conform  to  the  requirements  thereof. 

§  ii.  When  the  instrument  or  an  acceptance  or  any  indor 
ment  thereon  is  dated,  such  date  is  deemed  prima  facie  to  be  t 


igc 

: 


APPENDIX  203 

true  date  of  the  making,  drawing,  acceptance  or  indorsement, 
as  the  case  may  be. 

§  12.  The  instrument  is  not  invalid  for  the  reason  only  that 
it  is  ante-dated  or  post-dated,  provided  this  is  not  done  for  an 
illegal  or  fraudulent  purpose.  The  person  to  whom  an  instru- 
ment so  dated  is  delivered  acquires  the  title  thereto  as  of  the 
date  of  delivery. 

§  13.  When  an  instrument  expressed  to  be  payable  at  a  fixed 
period  after  date  is  issued  undated,  or  where  the  acceptance  of 
an  instrument  payable  at  a  fixed  period  after  sight  is  undated, 
any  holder  may  insert  therein  the  true  date  of  issue  or  accept- 
ance, and  the  instrument  shall  be  payable  accordingly.  The  in- 
sertion of  a  wrong  date  does  not  avoid  the  instrument  in  the 
hands  of  a  subsequent  holder  in  due  course,  but  as  to  him,  the 
date  so  inserted  is  to  be  regarded  as  the  true  date. 

§  14.  Where  the  instrument  is  wanting  jn  any  material  partic- 
uiar,  the  person  in  possession  thereof  has  a 


ity  to  complete  it  by  filling  up  the  blanks  therein.  And  a  signa- 
ture on  a  blank  paper  delivered  by  the  person  making  the  sig- 
nature in  order  that  the  paper  may  be  converted  into  a  negotia- 
ble instrument  operates  as  a  prima  facie  authority  to  fill  it  up 
as  such  for  ^py  ampu^f  In  order,  however,  that  any  such  in- 
strument when  completed  may  be  enforced  against  any  person 
who  became  a  party  thereto  prior  to  its  completion,  it  must  be 
filled  up  strictly  in  accordance  with  the  authority  given  and 
within  a  reasonable  time.  But  if  any  such,  instrument,  after 
completipn.  is  issued  otjoegotiatejijto  a 


is  valid  andjiffgctual  for  .all  purposes  in  his  hands,  and  he  may 
enforce  it  as  if  it  had  been  filled  up  strictly  in  accordance  with 
the  authority  given  and  within  a  reasonable  time. 

§  15.  Every  contract  on  a  negotiable  instrument  if  incom- 
plete will  not,  if  completed  and  negotiated,  without  authority, 
be  a  valid  contract  in  the  hands  of  any  holder,  as  against  any 
person  whose  signature  was  placed  thereon  before  delivery. 

§  1  6.  Every  contract  on  a  negotiable  instrument  is  incom- 
plete and  revocable  until  delivery  of  the  instrument  for  the 
purpose  of  giving  effect  thereto.  As  between  immediate  parties, 
and  as  regards  a  remote  party  other  than  a  holder  in  due 


204       THE  LAW  OF  COMMERCIAL  PAPER 

course,  the  delivery,  in  order  to  be  effectual,  must  be  made 
cither  by  or  under  the  authority  of  the  party  making,  drawing, 
accepting  or  indorsing,  as  the  case  may  be;  and  in  such  case 
the  delivery  may  be  shown  to  have  been  conditional  or  for  a 
special  purpose  only,  and  not  for  the  purpose  of  transferring 
the  property  in  the  instrument.  But  where  the  instrument  is 
in  the  hands  of  a  holder  in  due  course,  a  valid  delivery  thereof 
by  all  parties  prior  to  him  so  as  to  make  them  liable  to  him,  is 
conclusively  presumed.  And  where  the  instrument  is  no  longer 
in  the  possession  of  a  party  whose  signature  appears  thereon, 
a  valid  and  intentional  delivery  by  him  is  presumed  until  the 
contrary  is  proved. 

§  17.  Where  the  language  of  the  instrument  is  ambiguous,  or 
there  are  omissions  therein,  the  following  rules  of  construction 
apply: 

1.  Where  the  sum  payable  is  expressed  in  words  and  also  in 
figures  and  there  is  a  discrepancy  between  the  two,  the  sum  de- 
noted by  the  words  is  the  sum  payable;  but  if  the  words  are 
ambiguous  or  uncertain,  reference  may  be  had  to  the  figures  to 
fix  the  amount. 

2.  Where  the  instrument  provides  for  the  payment  of  inter- 
est, without  specifying  the  date  from  which  interest  is  to  run, 
the  interest  runs  from  the  date  of  the  instrument,  and  if  the  in- 
strument is  undated,  from  the  issue  thereof. 

3.  Where  the  instrument  is  not  dated,  it  will  be  considered 
to  be  dated  as  of  the  time  it  was  issued. 

4.  Where  there  is  conflict  between  the  written  and  printed 
provisions  of  the  instrument,  the  written  provisions  prevail. 

5.  Where  the  instrument  is  so  ambiguous  that  there  is  doubt 
whether  it  is  a  bill  or  a  note,  the  holder  may  treat  it  as  either, 
at  his  election. 

6.  Where  a  signature  is  so  placed  upon  the  instrument  that 
it  is  not  clear  in  what  capacity  the  person  making  the  same  in- 
tended to  sign,  he  is  to  be  deemed  an  indorser. 

7.  Where  an  instrument  containing  the  words  "I  promise  to 
pay"  is  signed  by  two  or  more  persons,  they  are  deemed  to  be 
jointly  and  severally  liable  thereon. 

§  18.  No  person  is  liable  on  the  instrument  whose  signature 


APPENDIX  205 

does  not  appear  thereon,  except  as  herein  otherwise  expressly 
provided.  But  one  who  signs  in  a  trade  or  assumed  name  will 
be  liable  to  the  same  extent  as  if  he  had  signed  his  own  name. 

§  19.  The  signature  of  any  party  may  be  made  by  a  duly 
authorized  agent.  No  particular  form  of  appointment  is  neces- 
sary for  this  purpose;  and  the  authority  of  the  agent  may  be 
established  as  in  other  cases  of  agency. 

§  20.  Where  the  instrument  contains,  or  a  person  adds  to  his 
signature,  words  indicating  that  he  signs  for  or  on  behalf  of 
the  principal,  or  in  a  representative  capacity,  he  is  not  liable  on 
the  instrument  if  he  was  duly  authorized;  but  the  mere  addi- 
tion of  words  describing  him  as  agent,  or  as  filling  a  represen- 
tative character  without  disclosing  his  principal,  does  not  ex- 
empt him  from  personal  liability. 

§  21.  A  signature  by  "procuration"  operates  as  notice  that 
the  agent  has  but  limited  authority  to  sign,  and  the  principal  is 
bound  in  case  the  agent  in  so  signing  acted  within  the  actual 
limits  of  his  authority. 

§  22.  The  indorsement  or  assignment  of  the  instrument  by  a 
corporation  or  by  an  infant  passes  the  property  therein,  not- 
withstanding that  from  want  of  capacity  the  corporation  or  in- 
fant may  incur  no  liability  thereon. 

§  23.  Where  a  signature  is  forged  or  made  without  authority 
it  is  wholly  inoperative,  and  no  right  to  retain  the  instrument 
or  to  give  a  discharge  thereof,  or  to  enforce  payment  thereof 
against  any  party  thereto,  can  be  acquired  through  or  under 
such  signature,  unless  the  party  against  whom  it  is  sought  to 
enforce  such  right  is  precluded  from  setting  up  the  forgery  or 
want  of  authority. 

ARTICLE    II CONSIDERATION 

§  24.  Every  negotiable  instrument  is  deemed  prima  facie  to 
have  been  issued  for  a  valuable  consideration,  and  every  person 
whose  signature  appears  thereon  to  have  become  a  party  there- 
to for  value. 

§  25.  Value  is  any  consideration  sufficient  to  support  a  sim- 
ple contract. 

2.  An  antecedent  or  preexisting  claim,  whether  for  money  or 


206       THE  LAW  OF  COMMERCIAL  PAPER 

not,  constitutes  value  where  an  instrument  is  taken  either  in 
satisfaction  therefor  (or)  as  security  therefor  and  is  deemed 
such,  whether  the  instrument  is  payable  on  demand  or  at  a 
future  time. 

§  26.  Where  value  has  at  any  time  been  given  for  the  in- 
strument, the  holder  is  deemed  a  holder  for  value  in  respect  to 
all  parties  who  became  such  prior  to  that  time. 

§  27.  Whether  the  holder  has  a  lien  on  the  instrument,  aris- 
ing either  from  contract  or  by  implication  of  law,  he  is  deemed 
a  holder  for  value  to  the  extent  of  his  lien. 

§  28.  Absence  or  failure  of  consideration  is  a  matter  of  de- 
fense as  against  any  person  not  a  holder  in  due  course,  and 
partial  failure  of  consideration  is  a  defense  pro  tanto,  whether 
the  failure  is  an  ascertained  and  liquidated  amount  or  other- 
wise. 

§  29.  An  accommodation  party  is  one  who  has  signed  the  in- 
strument as  maker,  drawer,  acceptor,  or  indorser,  for  the  pur- 
pose of  lending  his  name  to  some  other  person.  Such  a  person 
is  liable  on  the  instrument  to  a  holder  for  value  notwithstand- 
ing such  holder  at  the  time  of  taking  the  instrument  knew  him 
to  be  only  an  accommodation  party  and  in  case  a  transfer  after 
maturity  was  intended  by  the  accommodating  party  notwith- 
standing such  holder  acquired  title  after  maturity. 

ARTICLE    III — NEGOTIATIONS 

§  30.  An  instrument  is  negotiated  when  it  is  transferred  from 
one  person  to  another  in  such  manner  as  to  constitute  the  trans- 
feree the  holder  thereof;  if  payable  to  bearer,  it  is  negotiated 
by  delivery;  if  payable  to  order,  it  is  negotiated  by  the  indorse- 
ment of  the  holder,  completed  by  delivery. 

§  31.  The  indorsement  must  be  written  on  the  instrument  it- 
self or  upon  a  paper  attached  thereto.  The  signature  of  the 
indorser,  without  additional  words,  is  a  sufficient  indorsement 
and  the  addition  of  words  of  assignment  or  of  guaranty  shall 
not  negative  the  additional  effect  of  the  signature  as  an  in- 
dorsement unless  otherwise  expressly  stated. 

§  32.  The  indorsement  must  be  an  indorsement  of  the  en- 


APPENDIX  207 

tire  instrument.  An  indorsement  which  purports  to  transfer  to 
the  indorsee  a  part  only  of  the  amount  payable,  or  which  pur- 
ports to  transfer  the  instrument  to  two  or  more  indorsees 
severally,  does  not  operate  as  a  negotiation  of  the  instrument. 
But  where  the  instrument  has  been  paid  in  part,  it  may  be  in- 
dorsed as  to  the  residue. 

§  33.  An  indorsement  may  be  either  in  blank  or  special ;  and 
it  may  also  be  either  restrictive  or  qualified,  or  conditional. 

§  34.  A  special  indorsement  specifies  the  person  to  whom  or 
to  whose  order  the  instrument  is  to  be  payable;  and  the  in- 
dorsement of  such  indorsee  is  necessary  to  the  further  negotia- 
tion of  the  instrument.  An  indorsement  in  blank  specifies  no 
indorsee,  and  an  instrument  so  indorsed  is  payable  to  bearer, 
and  may  be  negotiated  by  delivery. 

§  35.  The  holder  may  convert  a  blank  indorsement  into  a 
special  indorsement  by  writing  over  the  signature  of  the  in- 
dorser  in  blank  any  contract  consistent  with  the  character  of  the 
indorsement. 

§  36.  An  indorsement  is  restrictive  which  either: 

1.  Prohibits  the  further  negotiation  of  the  instrument;  or 

2.  Constitutes  the  indorsee  the  agent  of  the  indorser;  or 

3.  Vests  the  title  in  the  indorsee  in  trust  for  or  to  the  use  of 
some  other  person.     But  the  mere  absence  of  words  implying 
power  to  negotiate  does  not  make  an  indorsement  restrictive. 

§  37.  A  restrictive  indorsement  confers  upon  the  indorsee  the 
right : 

1.  To  receive  payment  of  the  instrument. 

2.  To  bring  any  action  thereon  that  the  indorser  could  bring 
or  except  in  the  case  of  a  restrictive  indorsement  specified  in 
section  36 — sub-section  2,  any  action  against  the  indorser  or 
any  prior  party  that  a  special  indorsee  would  be  entitled  to 
bring. 

3.  To  transfer  the   instrument  where  the   form  of  the  in- 
dorsement authorizes  him  to  do  so. 

But  all  subsequent  indorsees  acquire  only  the  title  of  the  first 
indorsee  under  the  restrictive  indorsement  specified  in  section 
36 — sub-section  i — and  as  against  the  principal  or  cestue  que 
trust  only  the  title  of  the  first  indorsee  under  the  restrictive  in- 


208       THE  LAW  OF  COMMERCIAL  PAPER 

dorsements  specified  in  section  36 — sub-sections  2  and  3  re- 
spectively. , 

§  38.  A  qualified  indorsement  constitutes  the  indorser  a  mere 
assignor  of  the  title  to  the  instrument.  It  may  be  made  by  add- 
ing «to  the  indorsees  signature  the  words  "without  recourse" 
or  any  words  of  similar  import.  Such  an  indorsement  does 
not  impair  the  negotiable  character  of  the  instrument. 

§  39-  Where  an  indorsement  is  conditional,  a  party  required 
to  pay  the  instrument  may  disregard  the  condition,  and  make  a 
payment  to  the  indorsee  or  his  transferee,  whether  the  condi- 
tion has  been  fulfilled  or  not.  But  any  person  to  whom  an  in- 
strument so  indorsed  is  negotiated,  will  hold  the  same,  or  the 
proceeds  thereof,  subject  to  the  rights  of  the  person  indorsing 
conditionally. 

§  40.  Where  an  instrument  originally  payable  to  or  indorsed 
specifically  to  bearer  is  subsequently  indorsed  specially  it  may 
nevertheless  be  further  negotiated  by  delivery;  but  the  person 
indorsing  specially  is  liable  as  indorser  to  only  such  holders  as 
make  title  through  his  indorsement. 

§  41.  Where  an  instrument  is  payable  to  the  order  of  two  or 
more  payees  or  indorsees  who  are  not  partners,  all  must  in- 
dorse unless  the  one  indorsing  has  authority  to  indorse  for  the 
others. 

§  42.  Where  an  instrument  is  drawn  or  indorsed  to  a  per- 
son, as  "Cashier"  or  other  fiscal  officer  of  a  bank  or  corpora- 
tion, it  is  deemed  prima  facie  to  be  payable  to  the  bank  or  cor- 
poration of  which  he  is  such  officer ;  and  may  be  negotiated  by 
either  the  indorsement  of  the  bank  or  corporation,  or  the  in- 
dorsement of  the  officer. 

§  43.  Where  the  name  of  the  payee  or  indorsee  is  wrongly 
designated  or  misspelled,  he  may  indorse  the  instrument  as 
therein  described,  adding,  if  he  think  fit,  his  proper  signature. 

§  44.  Where  any  person  is  under  obligation  to  indorse  in  a 
representative  capacity,  he  may  indorse  in  such  terms  as  to 
negative  personal  liability. 

§  45.  Except  where  an  indorsement  bears  date  after  the 
maturity  of  the  instrument,  every  negotiation  is  deemed  prima 
facie  to  have  been  effected  before  the  instrument  was  overdue. 


APPENDIX  209 

§  46.  Except  where  the  contrary  appears,  every  indorsement 
is  presumed  prima  facie  to  have  been  made  at  the  place  where 
the  instrument  is  dated. 

§  47.  An  instrument  negotiable  in  its  origin  continues  to  be 
negotiable  until  it  has  been  respectively  indorsed  or  discharged 
by  payment  or  otherwise. 

§  48.  The  owner  may  at  any  time  strike  out  any  indorse- 
ment which  is  not  necessary  to  his  title.  The  indorser  whose  in- 
dorsement is  struck  out,  and  all  indorsers  subsequent  to  him, 
are  thereby  relieved  from  liability  on  the  instrument. 

§  49.  Where  the  holder  of  an  instrument  payable  to  his  or- 
der transfers  it  for  value  without  indorsing  it,  and  the  trans- 
ferer  vests  in  the  transferee  such  title  as  the  transferee  had 
therein,  and  the  transferee  acquires,  in  addition,  the  right  to 
enforce  the  instrument  against  one  who  signed  for  the  accom- 
modation of  the  transferer  and  the  right  to  have  the  indorse- 
ment of  the  transferer  if  omitted  by  accident  or  mistake.  But 
for  the  purpose  of  determining  whether  the  transferee  is  a 
holder  in  due  course,  the  negotiation  takes  effect  as  of  the  time 
when  the  indorsement  is  actually  made. 

§  50.  Where  an  instrument  is  negotiated  back  to  a  prior 
party,  such  party  may,  subject  to  the  provisions  of  this  Act,  re- 
issue and  further  negotiate  the  same,  but  he  is  not  entitled  to 
enforce  payment  thereof  against  any  intervening  party  to  whom 
he  was  personally  liable. 

ARTICLE   IV — RIGHTS   OF   THE   HOLDER 

§  51.  The  holder  of  a  negotiable  instrument  may  sue  there- 
on in  his  own  name  and  payment  to  him  in  due  course  dis- 
charges the  instrument. 

§  52.  A  holder  in  due  course  is  a  holder  who  has  taken  the 
instrument  under  the  following  conditions: 

1.  That  the  instrument  is  complete  and  regular  upon  its  face. 

2.  That  he  became  the  holder  of  it  before  it  was  over  due, 
and  without  notice  that  it  has  been  previously  dishonored,  if 
such  was  the  fact. 

3.  That  he  took  it  in  good  faith  and  for  value. 


210       THE  LAW  OF  COMMERCIAL  PAPER 

4.  That  at  the  time  it  was  negotiated  to  him  he  had  no  no- 
tice of  any  infirmity  in  the  instrument  or  defect  in  the  title  of 
the  person  negotiating  it. 

§  53.  Where  an  instrument  payable  on  demand  is  negotiated 
an  unreasonable  length  of  time  after  its  issue,  the  holder  is 
not  deemed  a  holder  in  due  course. 

§  54.  Where  the  transferee  receives  notice  of  any  infirmity 
in  the  instrument  or  defect  in  the  title  of  the  person  negotiating 
the  same  before  he  has  paid  the  full  amount  agreed  to  be  paid 
therefor  he  will  be  deemed  a  holder  in  due  course  only  to  the 
extent  of  the  amount  theretofore  paid  by  him. 

§  55.  The  title  of  a  person  who  negotiates  an  instrument  is 
defective  within  the  meaning  of  this  Act  when  he  obtained  the 
instrument,  or  any  signature  thereto,  by  fraud,  duress,  or  force 
and  fear,  or  other  unlawful  means,  or  for  an  illegal  considera- 
tion or  when  he  negotiates  it  in  breach  of  faith,  or  under  such 
circumstances  as  amount  to  a  fraud. 

§  56.  To  constitute  notice  of  an  infirmity  in  the  instrument 
or  defect  in  the  title  of  the  person  negotiating  the  same,  the 
person  to  whom  it  is  negotiated  must  have  had  actual  knowledge 
of  the  infirmity  or  defect,  or  knowledge  of  such  facts  that  his 
action  in  taking  the  instrument  amounted  to  bad  faith. 

§  57.  A  holder  in  due  course  holds  the  instrument  free  from 
any  defect  of  title  or  prior  parties  and  free  from  defenses 
available  to  prior  parties  among  themselves  except  the  defect 
and  defense  specified  in  section  10  of  Act  entitled  "An  act  to  re- 
vise the  law  in  relation  to  promissory  notes,  bonds,  due  bills 
and  other  instruments  in  writing,"  approved  March  18,  1874,  in 
force  July  I,  1874,  and  except  the  defect  and  defense  specified 
in  sections  131  and  136  of  an  Act  to  revise  the  law  in  relation 
to  criminal  jurisprudence,  approved  March  27,  1874,  in  force 
July  i,  1874,  known  as  sections  131  and  136  of  chapter  38  of  the 
Revised  Statutes  of  Illinois,  and  may  enforce  payment  of  the 
instrument  for  the  full  amount  thereof  against  all  parties  liable 
thereon. 

§  58.  In  the  hands  of  any  holder  other  than  a  holder  in  due 
course,  a  negotiable  instrument  is  subject  to  the  same  defenses 
as  if  it  were  non-negotiable.  But  the  holder  who  derives  his 


APPENDIX  211 

title  through  a  holder  in  due  course,  and  who  is  not  himself  a 
party  to  any  fraud  or  duress  or  illegality  affecting  the  instru- 
ment, has  all  che  rights  of  such  former  holder  in  respect  to  all 
parties  prior  to  such  holder. 

§  59.  Every  holder  is  deemed  prima  facie  to  be  a  holder  in 
due  course;  but  when  it  is  shown  that  the  title  of  any  person 
who  has  negotiated  the  instrument  was  defective,  the  burden 
is  on  the  holder  to  prove  that  he  or  some  person  under  whom 
he  claims  acquired  the  title  as  a  holder  in  due  course.  But  the 
last  mentioned  rule  does  not  apply  in  favor  of  a  party  who  be- 
came bound  on  the  instrument  prior  to  the  acquisition  of  such 
defective  title. 

ARTICLE  V — LIABILITIES  OF  PARTIES 

§  60.  The  maker  of  a  negotiable  instrument  by  making  it 
engages  that  he  will  pay  it  according  to  its  tenor,  and  admits 
the  existence  of  the  payee  and  his  then  capacity  to  indorse. 

§  61.  The  drawer  by  drawing  the  instrument  admits  the  ex- 
istence of  the  payee  and  his  then  capacity  to  indorse,  and  en- 
gages that  on  due  presentment  the  instrument  will  be  accepted 
or  paid,  or  both,  according  to  its  tenor,  and  that  if  it  be  dis- 
honored, and  the  necessary  proceedings  on  dishonor  be  duly 
taken,  he  will  pay  the  amount  thereof  to  the  holder,  or  to  any 
indorser  who  may  be  compelled  to  pay  it.  But  the  drawer  may 
insert  in  the  instrument  an  express  stipulation  negativing  or 
limiting  his  own  liability  to  the  holder. 

§  62.  The  acceptor  by  accepting  the  instrument  engages  that 
he  will  pay  it  according  to  the  tenor  of  his  acceptance,  and 
admits : 

1.  The  existence  of  the  drawer,  the  genuineness  of  his  signa- 
ture, and  his  capacity  and  authority  to  draw  the  instrument; 
and 

2.  The  existence  of  the  payee  and  his  then  capacity  to  in- 
dorse. 

§  63.  A  person  placing  his  signature  upon  an  instrument 
otherwise  than  as  maker,  drawer  or  acceptor  is  deemed  to  be 


212       THE  LAW  OF  COMMERCIAL  PAPER 

an  indorser,  unless  he  clearly  indicated  by  appropriate  words 
his  intention  to  be  bound  in  some  other  capacity. 

§  64.  Where  a  person,  not  otherwise  a  party  to  an  instru- 
ment, places  thereon  his  signature  in  blank  before  delivery,  he 
is  liable  as  indorser  in  accordance  with  the  following  rules: 

1.  If  the  instrument  is  a  note  or  bill,  payable  to  the  order 
of  a  third  person  or  an  accepted  bill,  payable  to  the  order  of 
the  drawer,  he  is  liable  to  the  payee  and  to  all  subsequent  par- 
ties. 

2.  If  the  instrument  is  a  note  or  unaccepted  bill  payable  to 
the  order  of  the  maker  or  drawer,  or  is  payable  to  bearer,  he  is 
liable  to  all  parties  subsequent  to  the  maker  or  drawer. 

3.  If  he  signs  for  the  accommodation  of  the  payee,  he  is 
liable  to  all  parties  subsequent  to  the  payee. 

§  65.  Every  person  negotiating  an  instrument  by  delivery  or 
by  a  qualified  indorsement,  warrants: 

1.  That  the  instrument  is  genuine  and  in  all  respects  what  it 
purports  to  be. 

2.  That  he  has  a  good  title  to  it. 

3.  That  all  prior  parties  had  capacity  to  contract. 

4.  That  he  has  no  knowledge  of  any  fact  which  would  im- 
pair the  validity  of  the  instrument. 

But  when  the  negotiation  is  by  delivery  only,  the  warranty 
extends  in  favor  of  no  holder  other  than  the  immediate  trans- 
feree. 

The  provisions  of  subdivision  three  of  this  section  do  not 
apply  to  persons  negotiating  public  or  corporate  securities,  other 
than  bills  and  notes. 

§  66.  Every  indorser  not  an  accommodating  party  who  in- 
dorses without  qualification,  warrants  to  all  subsequent  holders 
in  due  course: 

1.  The  matters  and  things  mentioned  in  subdivision  one,  two, 
three  and  four  of  the  next  preceding  section;  and 

2.  That  the  instrument  is  at  the  time  of  his  indorsement  valid 
and  subsisting. 

And,  in  addition,  every  indorser  engages  that  on  due  pre- 
sentment it  shall  be  accepted  or  paid,  or  both,  as  the  case  may 
be,  according  to  its  tenor,  and  that  if  it  be  dishonored  and  the 


APPENDIX  213 

necessary  proceedings  on  dishonor  be  duly  taken  he  will  pay 
the  amount  thereof  to  the  holder,  or  to  any  subsequent  indorser 
who  may  be  compelled  to  pay  it. 

§  67.  Where  a  person  places  his  indorsement  on  an  instru- 
ment negotiable  by  delivery  he  incurs  all  the  liabilities  of  an  in- 
dorser. 

§  68.  As  respects  one  another,  indorsers  are  liable  prima 
facie  in  the  order  in  which  they  indorse,  but  evidence  is  ad- 
missible to  show  that  as  between  or  among  themselves  they 
have  agreed  otherwise.  All  parties  jointly  liable  on  a  negotiable 
instrument  are  deemed  to  be  jointly  and  severally  liable. 

§  69.  Where  a  broker  or  other  agent  negotiated  an  instru- 
ment without  indorsement,  he  incurs  all  the  liabilities  pre- 
scribed by  section  sixty-five  of  this  Act,  unless  he  discloses  the 
name  of  his  principal,  and  the  fact  that  he  is  acting  only  as 
agent. 

§  693.  Whenever  any  bill  of  exchange  drawn  or  indorsed 
within  this  State  and  payable  without  this  State  is  duly  pro- 
tested for  non-acceptance  or  non-payment,  the  drawer  or  in- 
dorser thereof,  due  notice  being  given  of  such  non-acceptance 
or  non-payment,  shall  pay  such  bill  at  the  current  rate  of  ex- 
change and  with  legal  interest  from  the  time  such  bill  ought  to 
have  been  paid  until  paid,  together  with  the  costs  and  charges 
of  protest,  and  on  bills  payable  in  the  United  States  in  case 
suit  has  to  be  brought  thereon  and  on  bills  payable  without  the 
United  States  with  or  without  suit,  five  per  cent  damages  in 
addition. 


ARTICLE    VI — PRESENTMENT    FOR    PAYMENT 

§  70.  Presentment  for  payment  is  not  necessary  in  order  to 
charge  the  person  primarily  liable  on  the  instrument  except 
in  case  of  bank  notes,  but  if  the  instrument  is,  by  its  terms, 
payable  at  a  special  place  and  he  is  able  and  willing  to  pay  it 
there  at  maturity,  such  ability  and  willingness  are  equivalent  to 
a  tender  of  payment  upon  his  part.  But  except  as  herein 


214       THE  LAW  OF  COMMERCIAL  PAPER 

otherwise  provided,  presentment  for  payment  is  necessary  in 
order  to  charge  the  drawer  and  indorsers. 

§  71.  Where  the  instrument  is  not  payable  on  demand,  pre- 
sentment must  be  made  on  the  day  it  falls  due.  Where  it  is 
payable  on  demand,  presentment  must  be  made  within  a  reason- 
able time  after  its  issue,  except  that  in  case  of  a  bill  of  ex- 
change, presentment  for  payment  will  be  sufficient  if  made 
within  a  reasonable  time  after  the  last  negotiation  thereof. 

§  72.  Presentment  for  payment,  to  be  sufficient,  must  be 
made: 

1.  By  the  holder,  or  by  some  person  authorized  to  receive 
payment  on  his  behalf. 

2.  At  a  reasonable  hour  on  a  business  day. 

3.  At  a  proper  place  as  herein  defined. 

4.  To  the  person  primarily  liable  on  the  instrument,  or  if  he 
is  absent  or  inaccessible,  to  any  person  found  at  the  place  where 
the  presentment  is  made. 

§  73.  Presentment  for  payment  is  made  at  the  proper  place : 

1.  Where  a  place  of  payment  is  specified  in  the  instrument 
and  it  is  there  presented. 

2.  Where  no  place  of  payment  is  specified  and  the  address  of 
the  person  to  make  the  payment  is  given  in  the  instrument  and 
it  is  there  presented. 

3.  Where  no  place  of  payment  is  specified  and  no  address  is 
given  and  the  instrument  is  presented  at  the  usual  place  of  busi- 
ness or  residence  of  the  person  to  make  payment. 

4.  In  any  other  case,  if  presented  to  the  person  to  make  pay- 
ment wherever  he  can  be  found,  or  if  presented  at  his  last 
known  place  of  business  or  residence. 

§  74.  The  instrument  must  be  exhibited  to  the  person  from 
whom  payment  is  demanded,  and  when  it  is  paid  must  be  de- 
livered up  to  the  party  paying  it. 

§  75.  Where  the  instrument  is  payable  at  a  bank,  present- 
ment for  payment  must  be  made  during  banking  hours,  unless 
the  person  to  make  payment  has  no  funds  there  to  meet  it  at 
any  time  during  the  day,  in  which  case  presentment  at  any  hour 
before  the  bank  is  closed  on  that  day  is  sufficient. 

§  76.  Where  the  person  primarily  liable  on  the  instrument  is 


APPENDIX  215 

dead,  and  no  place  of  payment  is  specified,  presentment  for 
payment  must  be  made  to  his  personal  representative  if  such 
there  be,  and  if  with  exercise  of  reasonable  diligence,  he  can 
be  found. 

§  77.  Where  the  persons  primarily  liable  on  the  instrument 
are  liable  as  partners,  and  no  place  of  payment  is  specified,  pre- 
sentment for  payment  may  be  made  to  any  one  of  them,  even 
though  there  has  been  a  dissolution  of  the  firm. 

§  78.  Where  there  are  several  persons,  not  partners,  pri- 
marily liable  on  the  instrument,  and  no  place  of  payment  is 
specified,  presentment  must  be  made  to  them  all. 

§  79.  Presentment  for  payment  is  not  required  in  order  to 
charge  the  drawer  where  he  has  no  right  to  expect  or  require 
that  the  drawee  or  acceptor  will  pay  the  instrument. 

§  80.  Presentment  for  payment  is  not  required  to  charge  an 
indorser  where  the  instrument  was  made  or  accepted  for  his 
accommodation. 

§  81.  Delay  in  making  presentment  for  payment  is  excused 
when  the  delay  is  caused  by  circumstances  beyond  the  control 
of  the  holder,  and  not  imputable  to  his  default,  misconduct  or 
negligence.  When  the  cause  of  delay  ceases  to  operate,  pre- 
sentment must  be  made  with  reasonable  diligence. 

§  82.  Presentment  for  payment  is  dispensed  with : 

1.  When  after  the  exercise  of  reasonable  diligence  present- 
ment as  required  by  this  Act  can  not  be  made. 

2.  Where  the  drawee  is  a  fictitious  person. 

3.  By  waiver  of  presentment,  express  or  implied. 

§  83.  The  instrument  is  dishonored  by  non-payment  when: 

1.  It  is  duly  presented  for  payment  and  payment  is  refused 
or  can  not  be  obtained;  or 

2.  Presentment  is  excused  and  the  instrument  is  overdue  and 
unpaid. 

§  84.  Subject  to  the  provisions  of  this  Act,  when  the  instru- 
ment is  dishonored  by  non-payment,  an  immediate  right  of  re- 
course to  all  parties  secondarily  liable  thereon  accrues  to  the 
holder. 

§  85.  Every  negotiable  instrument  is  payable  at  the  time  fixed 
therein  without  grace.  When  the  day  of  maturity  falls  on  Sun- 


216       THE  LAW  OF  COMMERCIAL  PAPER 

day,  or  a  holiday,  the  instrument  is  payable  on  the  next  suc- 
ceeding business  day.  Instruments  falling  due  on  Saturday  are 
to  be  presented  for  payment  on  the  next  succeeding  business 
day,  except  that  instruments  payable  on  demand  may,  at  the 
option  of  the  holder,  be  presented  for  payment  before  12:00 
o'clock  noon  on  Saturday,  when  that  entire  day  is  not  a  holiday. 

§  86.  Where  the  instrument  is  payable  at  a  fixed  period  after 
date,  after  sight,  or  after  the  happening  of  a  specified  event,  the 
time  of  payment  is  determined  by  excluding  the  day  from  which 
the  time  is  to  begin  to  run,  and  by  including  the  date  of  pay- 
ment. 

§  87.  Payment  is  made  in  due  course  when  it  is  made  at  or 
after  maturity  of  the  instrument  to  the  holder  thereof  in  good 
faith  and  without  notice  that  his  title  is  defective. 


ARTICLE     VII NOTICE     OF     DISHONOR 

§  88.  Except  as  herein  otherwise  provided,  when  a  negotiable 
instrument  has  been  dishonored  by  non-acceptance  or  non-pay- 
ment, notice  of  dishonor  must  be  given  to  the  drawer  and  to 
each  indorser,  and  any  drawer  or  indorser  to  whom  such  notice 
is  not  given  is  discharged. 

§  89.  The  notice  may  be  given  by  or  on  behalf  of  the  holder, 
or  by  or  on  behalf  of  any  party  to  the  instrument  who  might 
be  compelled  to  pay  it  to  the  holder,  and  who,  upon  taking  it  up, 
would  have  a  right  to  reimbursement  from  the  party  to  whom 
the  notice  is  given. 

§  90.  Notice  of  dishonor  may  be  given  by  an  agent,  either  in 
his  own  name  or  in  the  name  of  any  party  entitled  to  give  no- 
tice, whether  that  party  be  his  principal  or  not. 

§  91.  Where  notice  is  given  by  or  on  behalf  of  the  holder,  it 
inures  for  the  benefit  of  all  subsequent  holders  and  all  prior 
parties  who  have  a  right  of  recourse  against  the  party  to  whom 
it  is  given. 

§  92.  Where  notice  is  given  by  or  on  behalf  of  a  party  en- 
titled to  give  notice,  it  inures  for  the  benefit  of  the  holder  and 
all  parties  subsequent  to  the  party  to  whom  notice  is  given. 

§  93.  Where  the  instrument  has  been  dishonored  in  the  hands 


APPENDIX  217 

of  an  agent,  he  may  either  himself  give  notice  to  the  parties 
liable  thereon  or  he  may  give  notice  to  his  principal.  If  he 
gives  notice  to  his  principal,  he  must  do  so  within  the  same 
time  as  if  he  were  the  holder,  and  the  principal,  upon  the  re- 
ceipt of  such  notice,  has  himself  the  same  time  for  giving  notice 
as  if  the  agent  had  been  an  independent  holder. 

§  94.  A  written  notice  need  not  be  signed,  and  an  insufficient 
written  notice  may  be  supplemented  and  validated  by  verbal 
communication.  A  misdescription  of  the  instrument  does  not 
vitiate  unless  the  party  to  whom  the  notice  is  given  is  in  fact 
misled  thereby. 

§  95.  The  notice  may  be  in  writing  or  merely  oral  and  may 
be  given  in  any  terms  which  sufficiently  identify  the  instrument 
and  indicate  that  it  has  been  dishonored  by  non-acceptance  or 
non-payment.  It  may  in  all  cases  be  given  by  delivering  it  per- 
sonally or  through  the  mails. 

§  96.  Notice  of  dishonor  may  be  given  either  to  the  party 
himself  or  to  his  agent  in  that  behalf. 

§  97.  Where  any  party  is  dead,  and  his  death  is  known  to  the 
party  giving  notice,  the  notice  must  be  given  to  a  personal 
representative,  if  there  be  one,  and  if  with  reasonable  diligence 
he  can  be  found.  If  there  be  no  personal  representative,  notice 
may  be  sent  to  the  last  residence  or  last  place  of  business  of  the 
deceased. 

§  98.  Where  the  parties  to  be  notified  are  partners,  notice  to 
any  one  partner  is  notice  to  the  firm,  even  though  there  has 
been  a  dissolution. 

§  99.  Notice  to  joint  parties  who  are  not  partners  must  be 
given  to  each  of  them,  unless  one  of  them  has  authority  to  re- 
ceive such  notice  for  the  others. 

§  100.  Where  a  party  has  been  adjudged  a  bankrupt  or  an 
insolvent,  or  has  made  an  assignment  for  the  benefit  of  his 
creditors,  notice  may  be  given  either  to  the  party  himself  or  to 
his  trustee  or  assignee. 

§  101.  Notice  may  be  given  as  soon  as  the  instrument  is  dis- 
honored, and  unless  delay  is  excused  as  hereinafter  provided, 
must  be  given  within  the  times  fixed  by  this  Act. 

§  102.  Where  the  person  giving  and  the  person  to  receive 


218       THE  LAW  OF  COMMERCIAL  PAPER 

notice  reside  in  same  place,  notice  must  be  given  within  the 
following  times: 

1.  If  given  at  the  place  of  business  of  the  person  to  receive 
notice,  it  must  be  given  before  the  close  of  business  hours  on 
the  day  following. 

2.  If  given  at  his  residence,  it  must  be  given  before  the  usual 
hours  of  rest  on  the  day  following. 

3.  If  sent  by  mail,  it  must  be  deposited  in  the  postoffice  in 
time  to  reach  him  in  the  usual  course  on  the  day  following. 

§  103.  Where  the  person  giving  and  the  person  to  receive  no- 
tice reside  in  different  places,  the  notice  must  be  given  within 
the  following  times: 

1.  If  sent  by  mail,  it  must  be  deposited  in  the  postoffice  in 
time  to  go  by  mail  the  day  following  the  day  of  dishonor,  or  if 
there  be  no  mail  at  a  convenient  hour  on  that  day,  by  the  next 
mail  thereafter. 

2.  If  given  otherwise  than  through  the  postoffice,  then  within 
the  time  that  notice  would  have  been  received  in  due  course  of 
mail,  if  it  had  been  deposited  in  the  postoffice  within  the  time 
specified  in  the  last  subdivision. 

§  104.  Where  notice  of  dishonor  is  duly  addressed  and  de- 
posited in  the  postoffice,  the  sender  is  deemed  to  have  given  due 
notice,  notwithstanding  any  miscarriage  in  the  mails. 

§  105.  Notice  is  deemed  to  have  been  deposited  in  the  post- 
office  when  deposited  in  any  branch  postoffice  or  in  any  letter 
box  under  the  control  of  the  postoffice  department. 

§  106.  Where  a  party  receives  notice  of  dishonor,  he  has, 
after  the  receipt  of  such  notice,  the  same  time  for  giving  notice 
to  antecedent  parties  that  the  holder  has  after  dishonor. 

§  107.  Where  a  party  has  added  an  address  to  his  signature, 
notice  of  dishonor  must  be  sent  to  that  address;  but  if  he  has 
not  given  such  address,  then  the  notice  must  be  sent  as  follows : 

1.  Either  to  the  postoffice  nearest  to  his  place  of  residence, 
or  to  the  postoffice  where  he  is  accustomed  to  receive  his  letter ; 
or 

2.  If  he  lives  in  one  place  and  has  his  place  of  business  in  an- 
other, notice  may  be  sent  to  either  place;  or 


APPENDIX  219 

3.  If  he  is  sojourning  in  another  place,  notice  may  be  sent 
to  the  place  where  he  is  sojourning. 

But  where  the  notice  is  actually  received  by  the  party  within 
the  time  specified  in  this  Act,  it  will  be  sufficient,  though  not 
sent  in  accordance  with  the  requirements  of  this  section. 

§  108.  Notice  of  dishonor  may  be  waived,  either  before  the 
time  of  giving  notice  has  arrived,  or  after  the  ommission  to  give 
due  notice,  and  the  waiver  may  be  express  or  implied. 

§  109.  Where  the  waiver  is  embodied  in  the  instrument  it- 
self, it  is  binding  upon  all  parties ;  but  where  it  is  written  above 
the  signature  of  an  indorser,  it  binds  him  only. 

§  no.  A  waiver  of  protest,  whether  in  the  case  of  a  foreign 
bill  of  exchange  or  other  negotiable  instrument,  is  deemed  to 
be  a  waiver  not  only  of  a  formal  protest,  but  also  of  a  present- 
ment and  notice  of  dishonor. 

§  in.  Notice  of  dishonor  is  dispensed  with  when,  after  the 
exercise  of  reasonable  diligence,  it  cannot  be  given  to  or  does 
not  reach  the  parties  sought  to  be  charged. 

§  112.  Delay  in  giving  notice  of  dishonor  is  excused  when 
the  delay  is  caused  by  circumstances  beyond  the  control  of  the 
holder  and  not  imputable  to  his  default,  misconduct  or  negli- 
gence. When  the  cause  of  delay  ceases  to  operate,  notice  must 
be  given  with  reasonable  diligence. 

§  113.  Notice  of  dishonor  is  not  required  to  be  given  to  the 
drawer  in  either  of  the  following  cases: 

1.  Where  the  drawer  and  drawee  are  the  same  person. 

2.  Where  the  drawee  is  a  fictitious  person  or  a  person  not 
having  capacity  to  contract. 

3.  Where  the  drawer  is  the  person  to  whom  the  instrument 
is  presented  for  payment. 

4.  Where  the  drawer  has  no  right  to  expect  or  require  that 
the  drawee  or  acceptor  will  honor  the  instrument. 

5.  Where  the  drawer  has  countermanded  payment. 

§  114.  Notice  of  dishonor  is  not  required  to  be  given  to  an 
indorser  in  either  of  the  following  cases: 

i.  Where  the  drawee  is  a  fictitious  person  or  a  person  not 
having  capacity  to  contract  and  the  indorser  was  aware  of 
the  fact  at  the  time  he  indorsed  the  instrument. 


220       THE  LAW  OF  COMMERCIAL  PAPER 

2.  Where  the  indorser  is  the  person  to  whom  the  instrument 
is  presented  for  payment. 

3.  Where  the  instrument  was  made  or  accepted  for  his  ac- 
commodation. 

§  115.  Where  due  notice  of  dishonor  by  non-acceptance  has 
been  given,  notice  of  a  subsequent  dishonor  by  non-payment  is 
not  necessary,  unless  in  the  meantime  the  instrument  has  been 
accepted. 

§  116.  An  omission  to  give  notice  of  dishonor  by  non-ac- 
ceptance does  not  prejudice  the  rights  of  a  holder  in  due  course 
subsequent  to  the  omission. 

§  117.  Where  any  negotiable  instrument  has  been  dishonored 
it  may  be  protested  for  non-acceptance  or  non-payment,  as  the 
case  may  be;  but  protest  is  not  required,  except  in  the  case  of 
foreign  bills  of  exchange. 

ARTICLE  VIII — DISCHARGE  OF   NEGOTIABLE   INSTRUMENTS 

§  118.  A  negotiable  instrument  is  discharged: 

1.  By  payment  in  due  course  by  or  on  behalf  of  the  principal 
debtor. 

2.  By  payment  in  due  course  by  the  party  accommodated 
where  the  instrument  is  made  or  accepted  for  accommodation. 

3.  By  the  intentional  cancellation  thereof  by  the  holder. 

4.  When  the  principal  debtor  becomes  the  holder  of  the  in- 
strument at  or  after  maturity  in  his  own  right. 

§  119.  A  person  secondarily  liable  on  the  instrument  is  dis- 
charged : 

1.  By  an  Act  which  discharges  the  instrument. 

2.  By  the  intentional  cancellation  of  his  signature  by  the 
holder. 

3.  By  a  valid  tender  of  payment  made  by  a  prior  party. 

4.  By  a  release  of  the  principal  debtor,  unless  the  holder's 
right  of  recourse  against  the  party  secondarily  liable  is  ex- 
pressly reserved,  or  unless  the  principal  debtor  be  an  accom- 
modating party. 

5.  By  an  agreement  in  favor  of  the  principal  debtor  binding 
upon  the  holder  to  extend  the  time  of  payment,  or  to  postpone 


APPENDIX  221 

the  holder's  right  to  enforce  the  instrument,  unless  made  with 
the  assent  prior  or  subsequent  of  the  party  secondarily  liable, 
or  unless  the  right  of  recourse  against  such  party  is  expressly 
reserved,  or  unless  the  principal  debtor  be  an  accommodating 
party. 

§  120.  Where  the  instrument  is  paid  by  a  party  secondarily 
liable  thereon,  it  is  not  discharged;  but  the  party  so  paying  it 
is  remitted  to  his  former  rights  as  regards  all  prior  parties,  and 
he  may  strike  out  his  own  and  all  subsequent  indorsements,  and 
again  negotiate  the  instrument,  except: 

1.  Where  it  is  payable  to  the  order  of  a  third  person  and 
has  been  paid  by  the  drawer;  and 

2.  Where  it  was  made  or  accepted  for  accommodation,  and 
has  been  paid  by  the  party  accommodated. 

§  121.  The  holder  may  expressly  renounce  his  rights  against 
any  party  to  the  instrument  before,  at,  or  after  its  maturity. 
An  absolute  and  unconditional  renunciation  of  his  rights  against 
the  principal  debtor  made  at  or  after  the  maturity  of  the  instru- 
ment, discharges  the  instrument.  But  a  renunciation  does  not; 
affect  the  rights  of  a  holder  in  due  course  without  notice.  A 
renunciation  must  be  in  writing,  unless  the  instrument  is  de- 
livered up  to  the  person  primarily  liable  thereon. 

§  122.  A  cancellation  made  unintentionally,  or  under  a  mis- 
take, or  without  the  authority  of  the  holder,  is  inoperative ;  but 
where  an  instrument  or  any  signature  thereon  appears  to  have 
been  canceled,  the  burden  of  proof  lies  on  the  party  who  alleges 
that  the  cancellation  was  made  unintentionally,  or  under  a  mis- 
take or  without  authority. 

§  123.  Where  a  negotiable  instrument  is  fraudulently  or  ma- 
terially altered  by  the  holder  without  the  assent  of  all  the 
parties  liable  thereon,  it  is  avoided  except  as  against  a  party 
who  has  himself  made,  authorized  or  assented  to  the  alteration 
and  subsequent  indorsers. 

But  when  an  instrument  has  been  materially  altered  and  is  in 
the  hands  of  a  holder  in  due  course,  not  a  party  to  the  altera- 
tion, he  may  enforce  payment  thereof  according  to  its  original 
tenor. 

§  124.  Any  alteration  which  changes: 


222       THE  LAW  OF  COMMERCIAL  PAPER 

1.  The  date. 

2.  The  sum  payable,  either  for  principal  or  interest. 

3.  The  time  or  place  of  payment. 

4.  The  number  and  the  relations  of  the  parties. 

5.  The  medium  or  currency  in  which  payment  is  to  be  made 
Or  which    adds    a   place   of   payment   where    no   place   o^ 

payment  is  specified,  or  any  other  change  or  addition  which  al- 
ters the  effect  of  the  instrument  in  any  respect,  is  a  materia! 
alteration. 

TITLE  II — BILLS  OF  EXCHANGE 

ARTICLE  I — FORM   AND   INTERPRETATION 

§  125.  A  bill  of  exchange  is  an  unconditional  order  in  writ- 
ing addressed  by  one  person  to  another,  signed  by  the  persor 
giving  it,  requiring  the  person  to  whom  it  is  addressed  to  pa> 
on  demand,  or  at  a  fixed  or  determinable  future  time,  a  sum  cer- 
tain in  money  to  order  or  to  bearer. 

§  126.  A  bill  of  itself  does  not  operate  as  an  assignment  oi 
the  funds  in  the  hands  of  the  drawee  available  for  the  payment 
thereof,  and  the  drawee  is  not  liable  on  the  bill  unless  and  until 
he  accepts  the  same. 

§  127.  A  bill  may  be  addressed  to  two  or  more  drawees 
jointly,  whether  they  are  partners  or  not;  but  not  to  two  or 
more  drawees  in  the  alternative  or  in  succession. 

§  128.  An  inland  bill  of  exchange  is  a  bill  which  is,  or  on  its 
face  purports  to  be,  both  drawn  and  payable  within  this  State. 
Any  other  bill  is  a  foreign  bill.  Unless  the  contrary  appears 
on  the  face  of  the  bill,  the  holder  may  treat  it  as  an  inland  bill. 

§  129.  Where  in  a  bill  drawer  and  drawee  are  the  same  per- 
son, or  where  the  drawee  is  a  fictitious  person,  or  a  person  not 
having  capacity  to  contract,  the  holder  may  treat  the  instrument 
at  his  option,  either  as  a  bill  of  exchange  or  a  promissory  note. 

§  130.  The  drawer  of  a  bill  and  any  indorser  may  insert 
thereon  the  name  of  a  person  to  whom  the  holder  may  resort 
in  case  of  need,  that  is  to  say,  in  case  the  bill  is  dishonored  by 
non-acceptance  or  non-payment.  Such  person  is  called  the 


APPENDIX  223 

referee  in  case  of  need.    It  is  the  option  of  the  holder  to  resort 
to  the  referee  in  case  of  need,  or  not,  as  he  may  see  fit. 


ARTICLE   II — ACCEPTANCE 

§  131.  The  acceptance  of  a  bill  is  the  signification  by  the 
drawee  of  his  assent  to  the  order  of  the  drawer.  The  accept- 
ance must  be  in  writing  and  signed  by  the  drawee.  It  must  not 
express  that  the  drawee  will  perform  his  promise  by  any  other 
means  than  the  payment  of  money. 

§  132.  The  holder  of  a  bill  presenting  the  same  for  accept- 
ance may  require  that  the  acceptance  be  written  on  the  bill,  and 
if  such  request  is  refused  may  treat  the  bill  as  dishonored. 

§  133-  Where  an  acceptance  is  written  on  a  paper  other  than 
the  bill  itself,  it  does  not  bind  the  acceptor  except  in  favor  of 
a  person  who,  on  the  faith  thereof,  receives  the  bill  for  value. 

§  134.  An  unconditional  promise  in  writing  to  accept  a  bill 
before  or  after  it  is  drawn  is  deemed  an  actual  acceptance  in 
favor  of  every  person  who,  upon  the  faith  thereof,  receives  the 
bill  for  value. 

§  135.  The  drawee  is  allowed  twenty-four  hours  after  pre- 
sentment in  which  to  decide  whether  or  not  he  will  accept  the 
bill;  but  the  acceptance,  if  given,  dates  as  the  day  of  presenta- 
tion. 

§  136.  A  bill  may  be  accepted  before  it  has  been  signed  by 
the  drawer,  or  while  otherwise  incomplete,  or  when  it  is  over- 
due, or  after  it  has  been  dishonored  by  a  previous  refusal  to  ac- 
cept, or  by  non-payment. 

§  137.  But  when  a  bill  payable  after  sight  is  dishonored  by 
non-acceptance  and  the  drawee  subsequently  accepts  it,  the 
holder,  in  the  absence  of  any  different  agreement,  is  entitled  to 
have  the  bill  payable  accepted  as  of  the  date  of  the  first  present- 
ment. 

§  138.  An  acceptance  is  either  general  or  qualified.  A  gen- 
eral acceptance  assents  without  qualification  to  the  order  of  the 
drawer.  A  qualified  acceptance  in  express  terms  varies  the 
effect  of  the  bill  as  drawn. 

§  139.  An  acceptance  to  pay  at  a  particular  place  is  a  general 


224       THE  LAW  OF  COMMERCIAL  PAPER 

acceptance  unless  it  expressly  states  that  the  bill  is  to  be  paid 
there  only,  and  not  elsewhere. 

§  140.  An  acceptance  is  qualified  which  is: 

1.  Conditional;  that  is  to  say,  which  makes  payment  by  the 
acceptor  dependent  on  the   fulfillment  of  a  condition  therein 
stated. 

2.  Partial ;  that  is  to  say,  an  acceptance  to  pay  part  only  of  the 
amount  for  which  the  bill  is  drawn. 

3.  Local ;  that  is  to  say,  an  acceptance  to  pay  only  at  a  parti- 
cular place. 

4.  Qualified  as  to  time. 

5.  The  acceptance  of  some  one  or  more  of  the  drawees,  but 
not  of  all. 

§  141.  The  holder  may  refuse  to  take  a  qualified  acceptance, 
and  if  he  does  not  obtain  an  unqualified  acceptance,  he  may 
treat  the  bill  as  dishonored  by  non-acceptance.  Where  a  quali- 
fied acceptance  is  taken,  the  drawer  and  indorsers  are  discharged 
from  liability  on  the  bill,  unless  they  have  expressly  or  im- 
pliedly  authorized  the  holder  to  take  a  qualified  acceptance,  or 
subsequently  assent  thereto.  When  the  drawer  or  indorser  re- 
ceives notice  of  a  qualified  acceptance,  he  must  within  a  rea- 
sonable time  express  his  dissent  to  the  holder,  or  he  will  be 
deemed  to  have  assented  thereto. 

ARTICLE    III — PRESENTMENT    FOR    ACCEPTANCE 

§  142.  Presentment  for  acceptance  must  be  made: 

1.  Where  the  bill  is  payable  after  sight,  or  in  any  other  case 
where  presentment  for  acceptance  is  necessary,  in  order  to  fix 
the  maturity  of  the  instrument;  or 

2.  Where  the  bill  expressly  stipulates  that  it  shall  be  pre- 
sented for  acceptance;  or 

3.  Where  the  bill  is  drawn  payable  elsewhere  than  at  the 
residence  or  place  of  business  of  the  drawee. 

In  no  other  case  is  presentment  for  acceptance  necessary  in 
order  to  render  any  party  to  the  bill  liable. 

§  143.  Except  as  herein  otherwise  provided,  the  holder  of  a 
bill  which  is  required  by  the  next  preceding  section  to  be  pre- 


APPENDIX  225 

sented  for  acceptance  must  either  present  it  for  acceptance  or 
negotiate  it  within  a  reasonable  time.  If  he  fails  to  do  so,  the 
drawer  and  all  indorsers  are  discharged. 

§  144.  Presentment  for  acceptance  must  be  made  by  or  on 
behalf  of  the  holder  at  a  reasonable  hour,  on  a  business  day, 
and  before  the  bill  is  overdue,  to  the  drawee  or  some  person 
authorized  to  accept  or  refuse  acceptance  on  his  behalf;  and 

1.  Where  a  bill  is  addressed  to  two  or  more  drawees  who  are 
not  partners,  presentment  must  be  made  to  them  all,  unless  one 
has  authority  to  accept  or  refuse  acceptance  for  all,  in  which 
case  presentment  may  be  made  to  him  only. 

2.  Where  the  drawee  is  dead,  presentment  may  be  made  to 
his  personal  representative. 

3.  Where  the  drawee  has  been  adjudged  a  bankrupt  or  an  in- 
solvent, or  has  made  an  assignment  for  the  benefit  of  creditors, 
presentment  may  be  made  to  him  or  to  his  trustee  or  assignee. 

§  145.  A  bill  may  be  presented  for  acceptance  on  any  day  on 
which  negotiable  instruments  may  be  presented  for  payment  un- 
der the  provisions  of  sections  72  and  85  of  this  Act.  When 
Saturday  is  not  otherwise  a  holiday,  presentment  for  acceptance 
may  be  made  before  12:00  o'clock  noon  on  that  day. 

§  146.  Where  the  holder  of  a  bill  drawn  payable  elsewhere 
than  at  the  place  of  business  or  residence  of  the  drawee  has  not 
time,  with  the  exercise  of  reasonable  diligence,  to  present  the 
bill  for  acceptance  before  presenting  it  for  payment  on  the  day 
that  it  falls  due,  the  delay  caused  by  presenting  the  bill  for  ac- 
ceptance before  presenting  it  for  payment  is  excused  and  does 
not  discharge  the  drawers  and  indorsers. 

§  147.  Presentment  for  acceptance  is  excused  and  a  bill  may 
be  treated  as  dishonored  by  non-acceptance  in  either  of  the  fol- 
lowing cases: 

1.  Where  the  drawee  is  dead,  or  has  absconded,  or  is  a  fic- 
titious person  or  a  person  not  having  capacity  to  contract  by 
bill. 

2.  Where,  after  the  exercise  of  reasonable  diligence,  present- 
ment cannot  be  made. 

3.  Where,  although  presentment  has  been  irregular,  accept- 
ance has  been  refused  on  some  ground. 


226       THE  LAW  OF  COMMERCIAL  PAPER 

§  148.  A  bill  is  dishonored  by  non-acceptance: 

1.  When  it  is  duly  presented  for  acceptance  and  such  an  ac- 
ceptance as  is  prescribed  by  this  Act  is  refused  or  can  not  be 
obtained;  or 

2.  When  a  presentment  for  acceptance  is  excused  and  the  bill 
is  not  accepted. 

§  149.  Where  a  bill  is  duly  presented  for  acceptance  and  is 
not  presented  within  the  prescribed  time,  the  person  presenting 
it  must  treat  the  bill  as  dishonored  by  non-acceptance,  or  he 
loses  the  right  of  recourse  against  the  drawer  and  indorsers. 

§  150.  When  a  bill  is  dishonored  by  non-acceptance,  an  im- 
mediate right  of  recourse  against  the  drawers  and  indorsers  ac- 
crues to  the  holders,  and  no  presentment  for  payment  is  neces- 
sary. 

ARTICLE   IV — PROTEST 

§  151.  Where  a  foreign  bill  appearing  on  its  face  to  be  such 
is  dishonored  by  non-acceptance,  it  must  be  duly  protested  for 
non-acceptance,  and  where  such  a  bill  which  has  not  previously 
been  dishonored  by  non-acceptance  is  dishonored  by  non-pay- 
ment, it  must  be  duly  protested  for  non-payment.  If  it  is  not 
so  protested,  the  drawer  and  indorsers  are  discharged.  Where 
a  bill  does  not  appear  on  its  face  to  be  a  foreign  bill,  protest 
thereof,  in  case  of  dishonor,  is  unnecessary. 

§  152.  The  protest  must  be  annexed  to  the  bill,  or  must  con- 
tain a  copy  thereof,  and  must  be  under  the  hand  and  seal  of  the 
notary  making  it  and  must  specify: 

1.  The  time  and  place  of  presentment. 

2.  The   fact  that   presentment  was  made   and  the   manner 
thereof. 

3.  The  cause  or  reason  for  protesting  the  bill. 

4.  The  demand  made  and  the  answer  given,  if  any,  of  the  fact 
that  the  drawee  or  acceptor  could  not  be  found. 

§  153.  Protest  may  be  made  by: 

1.  A  notary  public;  or 

2.  By  any  respectable  resident  of  the  place  where  the  bill  is 
dishonored,  in  the  presence  of  two  or  more  credible  witnesses. 


APPENDIX  227 

§  154.  When  a  bill  is  protested,  such  protest  must  be  made  on 
the  day  of  its  dishonor,  unless  delay  is  excused  as  herein  pro- 
vided. When  a  bill  has  been  duly  noted,  the  protest  may  be 
subsequently  extended  as  of  the  date  of  the  noting. 

§  155.  A  bill  must  be  protested  at  the  place  where  it  is  dis- 
honored, except  that  when  a  bill  drawn  payable  at  the  place  of 
business  or  residence  of  some  person  other  than  the  drawee, 
has  been  dishonored  by  non-acceptance,  it  must  be  protested  for 
non-payment  at  the  place  where  it  is  expressed  to  be  payable; 
and  no  other  presentment  for  payment  to,  or  demand  on,  the 
drawee  is  necessary. 

§  156.  A  bill  which  has  been  protested  for  non-acceptance 
may  be  subsequently  protested  for  non-payment. 

§  157.  When  the  acceptor  has  been  adjudged  a  bankrupt  or 
an  insolvent  or  has  made  an  assignment  for  the  benefit  of  credi- 
tors, before  the  bill  matures,  the  holder  may  cause  the  bill  to  be 
protested  for  better  security  against  the  drawer  and  indorsers. 

§  158.  Protest  is  dispensed  with  by  any  circumstances  which 
would  dispense  with  notice  of  dishonor.  Delay  in  noting  or 
protesting  is  excused  when  delay  is  caused  by  circumstances  be- 
yond the  control  of  the  holder  and  not  imputable  to  his  default, 
misconduct  or  negligence.  When  the  cause  of  delay  ceases  to 
operate,  the  bill  must  be  noted  or  protested  with  reasonable 
diligence. 

§  159.  Where  a  bill  is  lost  or  destroyed,  or  is  wrongly  de- 
tained from  the  person  entitled  to  hold  it,  protest  may  be  made 
on  a  copy  or  written  particulars  thereof. 

ARTICLE  V — ACCEPTANCE  FOR   HONOR 

§  1 60.  Where  a  bill  of  exchange  has  been  protested  for  dis- 
honor by  non-acceptance,  or  protested  for  better  security,  and 
is  not  overdue,  any  person  not  being  a  party  already  liable  there- 
on, may  with  the  consent  of  the  holder,  intervene  and  accept 
the  bill  supra  protest  for  the  honor  of  any  party  liable  thereon 
or  for  the  honor  of  the  person  for  whose  account  the  bill  is 
drawn.  The  acceptance  for  honor  may  be  for  part  only  of  the 
sum  for  which  the  bill  is  drawn,  and  where  there  has  been  an 


228       THE  LAW  OF  COMMERCIAL  PAPER 

acceptance  for  honor  for  one  party  there  may  be  a  further  ac- 
ceptance by  a  different  person  for  the  honor  of  another  party. 

§  161.  An  acceptance  for  honor  supra  protest  must  be  in 
writing  and  indicate  that  it  is  an  acceptance  for  honor,  and  must 
be  signed  by  the  acceptor  for  honor. 

§  162.  Where  an  acceptance  for  honor  does  not  expressly 
state  for  whose  honor  it  was  made,  it  is  deemed  to  be  an  ac- 
ceptance for  the  honor  of  the  drawer. 

§  163.  The  acceptor  for  honor  is  liable  to  the  holder  and  to 
all  parties  to  the  bill  subsequent  to  the  party  for  whose  honor 
he  has  accepted. 

§  164.  The  acceptor  for  honor  by  such  acceptance  engages 
that  he  will,  on  due  presentment,  pay  the  bill  according  to  the 
terms  of  his  acceptance:  Provided,  it  shall  not  have  been  paid 
by  the  drawee;  And  provided,  also,  that  it  shall  have  been  duly 
presented  for  payment  and  protested  for  non-payment  and  no- 
tice of  dishonor  given  to  him. 

§  165.  When  a  bill  payable  after  sight  is  accepted  for  honor 
its  maturity  is  calculated  from  the  date  of  the  noting  for  non- 
acceptance  and  not  from  the  date  of  the  acceptance  for  honor. 

§  166.  Where  a  dishonored  bill  has  been  accepted  for  honor 
supra  protest  or  contains  a  reference  in  case  of  need,  it  must 
be  protested  for  non-payment  before  it  is  presented  for  pay- 
ment to  the  acceptor  for  honor  or  referee  in  case  of  need. 

§  167.  Presentment  for  payment  to  the  acceptor  for  honor 
must  be  made  as  follows: 

1.  If  it  is  to  be  presented  in  the  place  where  the  protest  for 
non-payment  was  made,  it  must  be  presented  not  later  than  the 
day  following  its  maturity. 

2.  If  it  is  to  be  presented  in  some  other  place  than  the  place 
where  it  was  protested,  then  it  must  be  forwarded  within  the 
time  specified  in  section  103. 

§  168.  The  provisions  of  section  81  apply  where  there  is  de- 
lay in  making  presentment  to  the  acceptor  for  honor  or  referee 
in  case  of  need. 

§  169.  When  the  bill  is  dishonored  by  the  acceptor  for  honor, 
it  must  be  protested  for  non-payment  by  him. 


APPENDIX  229 

ARTICLE  VI — PAYMENT  FOR  HONOR 

§  170.  Where  a  bill  has  been  accepted  for  non-payment,  any 
person  may  intervene  and  pay  it  supra  protest  for  the  honor  of 
any  person  liable  thereon  or  for  the  honor  of  the  person  for 
whose  account  it  was  drawn. 

§  171.  The  payment  for  honor  supra  protest  in  order  to 
operate  as  such,  and  not  as  a  mere  voluntary  payment,  must  be 
attested  by  a  notarial  act  of  honor,  which  may  be  appended  to 
the  protest  or  form  an  extension  to  it. 

§  172.  The  notarial  act  of  honor  must  be  founded  on  a 
declaration  made  by  the  payer  for  honor  or  by  his  agent  in  that 
behalf  declaring  his  intention  to  pay  the  bill  for  honor  and  for 
whose  honor  he  pays. 

§  173.  Where  two  or  more  persons  offer  to  pay  a  bill  for  the 
honor  of  different  parties,  the  person  whose  payment  will  dis- 
charge most  parties  to  the  bill  is  to  be  given  the  preference. 

§  174.  Where  a  bill  has  been  paid  for  honor,  all  parties  sub- 
sequent to  the  party  for  whose  honor  it  is  paid  are  discharged, 
but  the  payer  for  honor  is  subrogated  for,  and  succeeds  to,  both 
the  rights  and  duties  of  the  holder  as  regards  the  party  for 
whose  honor  he  pays  and  all  parties  liable  to  the  latter. 

§  I75-  Where  the  holder  of  a  bill  refuses  to  receive  payment 
supra  protest,  he  loses  his  right  of  recourse  against  any  party 
who  would  have  been  discharged  by  such  payment. 

§  176.  The  payer  for  honor,  on  paying  to  the  holder  the 
amount  of  the  bill  and  the  notarial  expenses  incidental  to  its 
dishonor,  is  entitled  to  receive  both  the  bill  itself  and  the  pro- 
test. 

ARTICLE   VII — BILLS    IN    A    SET 

§  177.  Where  a  bill  is  drawn  in  a  set,  each  part  of  the  set 
being  numbered  and  containing  a  reference  to  other  parts,  the 
whole  of  the  parts  constitute  one  bill. 

§  178.  Where  two  or  more  parts  of  a  set  are  negotiated  to 
different  holders  in  due  course,  the  holder  whose  title  first  ac- 
crues is,  as  between  such  holders,  the  true  owner  of  the  bill. 


230       THE  LAW  OF  COMMERCIAL  PAPER 

But  nothing  in  this  section  affects  the  rights  of  a  person  who 
in  due  course  accepts  or  pays  the  part  first  presented  to  him. 

§  179.  Where  the  holder  of  a  set  indorses  two  or  more  parts 
to  different  persons  he  is  liable  on  every  such  part,  and  every 
indorser  subsequent  to  him  is  liable  on  the  part  he  has  himself 
indorsed,  as  if  such  parts  were  separate  bills. 

§  180.  The  acceptance  may  be  written  on  any  part  and  it  must 
be  written  on  one  part  only.  If  the  drawee  accepts  more  than 
one  part,  and  such  accepted  parts  are  negotiated  to  different 
holders  in  due  course,  he  is  liable  on  every  such  part  as  if  it 
were  a  separate  bill. 

§  181.  When  the  acceptor  of  a  bill  drawn  in  a  set  pays  it 
without  requiring  the  part  bearing  his  acceptance  to  be  de- 
livered up  to  him,  and  that  part  at  maturity  is  outstanding  in 
the  hands  of  a  holder  in  due  course,  he  is  liable  to  the  holder 
thereon. 

§  182.  Except  as  herein  otherwise  provided,  where  any  one 
part  of  a  bill  drawn  in  a  set  is  discharged  by  payment  or  other- 
wise, the  whole  bill  is  discharged. 

TITLE  III — PROMISSORY  NOTES  AND  CHECKS 

ARTICLE  I 

§  183.  A  negotiable  promissory  note  within  the  meaning  of 
this  Act  is  an  unconditional  promise  in  writing  made  by  one 
person  to  another,  signed  by  the  maker,  engaging  to  pay  on  de- 
mand or  at  a  fixed  or  determinable  future  time,  a  sum  certain  in 
money  to  order  or  to  bearer.  Where  a  note  is  drawn  to  the 
maker's  own  order,  it  is  not  complete  until  indorsed  by  him. 

§  184.  A  check  is  a  bill  of  exchange  drawn  on  a  bank  payable 
on  demand.  Except  as  herein  otherwise  provided,  the  pro- 
visions of  this  Act  [which]  are  applicable  to  a  bill  of  exchange 
payable  on  demand  apply  to  a  check. 

§  185.  A  check  must  be  presented  for  payment  within  a  rea- 
sonable time  after  its  issue,  and  notice  of  dishonor  given  to  the 
drawer  as  provided  for  in  the  case  of  bills  of  exchange,  or  the 


APPENDIX  231 

drawer  will  be  discharged  from  liability  thereon  to  the  extent  of 
the  loss  caused  by  the  delay. 

§  1 86.  Where  a  check  is  certified  by  the  bank  on  which  it  is 
drawn,  the  certification  is  equivalent  to  an  acceptance. 

§  187.  Where  the  holder  of  a  check  procures  it  to  be 'accepted 
or  certified,  the  drawer  and  all  indorsers  are  discharged  from 
liability  thereon. 

§  1 88.  A  check  of  itself  does  not  operate  as  an  assignment 
of  any  part  of  the  funds  to  the  credit  of  the  drawer  with  the 
bank,  and  the  bank  is  not  liable  to  the  holder,  unless  and  until 
it  accepts  or  certifies  the  check. 

TITLE  IV — GENERAL  PROVISIONS 

ARTICLE    I 

§  189.  This  Act  shall  be  known  as  the  Negotiable  Instrument 
Law. 

§  190.  In  this  Act,  unless  the  context  otherwise  requires : 

"Acceptance"  means  an  acceptance  completed  by  delivery  or 
notification. 

"Action"  includes  counter-claim  and  set-off. 

"Bank"  includes  any  person  or  association  of  persons  carry- 
ing on  the  business  of  banking,  whether  incorporated  or  not. 

"Bearer"  means  the  person  in  possession  of  a  bill  or  note 
which  is  payable  to  bearer. 

"Bill"  means  bill  of  exchange,  and  "note"  means  negotiable 
promissory  note. 

"Delivery"  means  transfer  of  possession,  actual  or  con- 
structive, from  one  person  to  another. 

"Holder"  means  the  payee  or  indorsee  of  a  bill  or  note,  who 
is  in  possession  of  it,  or  the  bearer  thereof. 

"Indorsement"  means  an  indorsement  completed  by  delivery. 

"Instrument"  means  negotiable  instrument. 

"Issue"  means  the  first  delivery  of  the  instrument,  complete 
in  form,  to  a  person  who  takes  it  as  a  holder. 

"Person"  includes  a  body  of  persons,  whether  incorporated 
or  not. 


232       THE  LAW  OF  COMMERCIAL  PAPER 

"Value"  means  valuable  consideration. 

"Written"  includes  printed,  and  "writing"  includes  print. 

§  191.  The  person  "primarily"  liable  on  an  instrument  is  the 
person  who,  by  the  terms  of  the  instrument,  is  absolutely  re- 
quired to  pay  the  same.  All  other  parties  are  "secondarily" 
liable. 

§  192.  In  determining  what  is  a  "reasonable  time"  or  an  "un- 
reasonable time,"  regard  is  to  be  had  to  the  nature  of  the  in- 
strument, the  usage  of  trade  or  business  (if  any)  with  respect 
to  such  instruments,  and  the  facts  of  the  particular  case. 

§  193.  Where  the  day,  or  the  last  day,  for  doing  an  act  here- 
in required  or  permitted  to  be  done  falls  on  Sunday  or  on  a 
holiday,  the  act  may  be  done  on  the  next  succeeding  secular  or 
business  day. 

§  194.  The  provisions  of  this  Act  do  not  apply  to  negotiable 
instruments  made  and  delivered  prior  to  the  passage  hereof. 

§  195.  In  any  case  not  provided  for  in  this  Act,  the  rules  of 
the  law  merchant  shall  govern. 

§  196.  Sections  i,  2  and  8  of  an  Act  entitled,  "An  Act  to  re- 
vise the  law  in  relation  to  promissory  notes,  bonds,  due  bills 
and  other  instruments  in  writing,"  approved  March  18,  1874,  in 
force  July  I,  1874,  and  sections  10  and  n  of  an  Act  entitled, 
"An  Act  to  provide  for  the  appointment,  qualification  and 
duties  of  notaries  public  and  certifying  their  official  acts,"  ap- 
proved April  5,  1872,  in  force  July  I,  1872,  are  hereby  repealed. 


OTHER  PROVISIONS 

ASSIGNMENT  OF  NOTES  SECURED  BY  CHATTEL  MORTGAGE 
[REVISED  STATUTES,  CHAPTER  95,  PARAGRAPHS  25,  26] 

AN  ACT  to  regulate  the  assignment  of  notes  secured  by  chattel 
mortgages  and  to  regulate  the  sale  of  property  under  the 
power  of  sale  contained  in  chattel  mortgages.  [Approved 
June  21,  1895.] 

FORM  OF  NOTE — DEFENSES.]  §  I.  Be  it  enacted  by  the  People 
of  the  State  of  Illinois,  represented  in  the  General  Assembly: 
That  all  notes  secured  by  chattel  mortgages  shall  state  upon 
their  face  that  they  are  so  secured,  and  when  assigned  by  the 
payee  therein  named,  shall  be  subject  to  all  defenses  existing 
between  the  payee  and  the  payor  of  said  notes  the  same  as  if 
said  notes  were  held  by  the  payee  therein  named,  and  any 
chattel  mortgage  securing  notes  which  do  not  state  upon  their 
face  the  fact  of  such  security  shall  be  absolutely  void. 

SALE  UNDER  MORTGAGE  PROCEDURE.]  §  2.  That  all  sales  of 
personal  property  under  the  power  of  sale  contained  in  any 
chattel  mortgage  shall  be  made  in  the  county  where  the  mortga- 
gor resides  or  where  the  property  is  situated  when  mortgaged. 
If  there  are  more  than  one  mortgagor,  then  in  the  county  where 
the  mortgagor  in  possession  of  the  property  resides  at  the  time 
of  taking  possession  by  the  mortgagee,  and  in  every  case  where 
the  mortgagor  can  be  found  or  his  or  her  postoffice  address 
can  be  ascertained,  notice  of  the  time  and  place  of  said  sale 
shall  be  given  to  one  or  more  of  the  mortgagors  three  days  prior 
to  said  sale  and  by  posting  a  copy  of  said  notice  at  the  place 
where  said  goods  secured  by  said  mortgage  are  located  at  least 
three  days  prior  to  said  sale,  and  upon  the  making  of  said  sale 
the  mortgagee  shall  make  out  a  statement  showing  the  items 
of  personal  property  sold,  the  names  of  each  purchaser  and  the 
amount  for  which  each  article  sold,  and  also  an  itemized  state- 

233 


234       THE  LAW  OF  COMMERCIAL  PAPER 

ment  of  the  necessary  reasonable  expenses  incurred  in  taking, 
keeping  and  selling  said  property,  and  shall  deliver  the  same  to 
the  mortgagor  or  some  one  of  them  in  person  or  by  mail,  and  if 
he  fails  so  to  do  within  ten  days  after  said  sale,  the  owner  of 
said  property  may  sue  for  and  recover  one-third  of  the  value  of 
the  property  so  sold  from  the  mortgagee,  or  person  making  said 
sale  as  assignee  of  said  mortgagee:  Provided,  that  nothing  in 
this  Act  shall  apply  to  the  sale  of  furniture  by  regular  dealers 
on  the  so-called  installment  plan. 

GARNISHMENT:    ACT  OF  MARCH  9,  1872 

[REVISED  STATUTES,  CHAPTER  62,  PARAGRAPH  15] 

NEGOTIABLE  PAPER.]  §  15.  No  person  shall  be  liable  as  a 
garnishee  by  reason  of  having  drawn,  accepted,  made  or  in- 
dorsed any  negotiable  instrument,  when  the  same  is  not  due,  in 
the  hands  of  the  defendant  at  the  time  of  service  of  the  gar- 
nishee, summons,  or  the  rendition  of  the  judgment.  [Warne 
et  al.  v.  Kendall,  78  111.,  598.] 

GAMING:    ACT  OF  MARCH  27,  1874 

[REVISED  STATUTES,  CHAPTER  38,  PARAGRAPH  131] 

GAMING  CONTRACTS.]  §  131.  All  promises,  notes,  bills,  bonds, 
covenants,  contracts,  agreements,  judgments,  mortgages,  or 
other  securities  or  conveyances  made,  given,  granted,  drawn  or 
entered  into,  or  executed  by  any  person  whatsoever,  where  the 
whole  or  any  part  of  the  consideration  thereof,  shall  be  for  any 
money,  property  or  other  valuable  thing,  won  by  any  gaming, 
or  playing  at  cards,  dice,  or  any  other  game  or  games,  or  by 
betting  on  the  side  or  hands  of  any  person  gaming,  or  by  wager 
or  bet  upon  any  race,  fight,  pastime,  sport,  lot  chance,  casualty, 
election  or  unknown  or  contingent  event  whatever,  or  for  the 
reimbursing  or  paying  any  money  or  property  knowingly  lent  or 
advanced  at  the  time  and  place  of  such  play  or  bet,  to  any  per- 
son or  persons  so  gaming  or  betting,  or  that  shall,  during  such 


APPENDIX  235 

play  or  betting,  so  play  or  bet,  shall  be  void  and  of  no  effect. 
[R.  S.  1845,  P-  263,  §  i.  Merchants'  Savings  Loan  &  Trust  Co. 
v.  Goodrich,  75  111.,  554. 


LIMITATIONS:    ACT  OF  APRIL  4,  1872 

[REVISED  STATUTES,  CHAPTER  83,  PARAGRAPHS  16  AND  17] 

ON  WRITINGS — NEW  CONTRACT.]  §  16.  Actions  on  bonds, 
promissory  notes,  bills  of  exchange,  written  leases,  written  con- 
tracts, or  other  evidences  of  indebtedness  in  writing,  shall  be 
commenced  within  ten  years  next  after  the  cause  of  action  ac- 
crued; but  if  any  payment  or  new  promise  to  pay  shall  have 
been  made,  in  writing,  on  any  bond,  note,  bill,  lease,  contract, 
or  other  written  evidence  of  indebtedness,  within  or  after  the 
said  period  of  ten  years,  then  an  action  may  be  commenced 
thereon  at  any  time  within  ten  years  after  the  time  of  such 
payment  or  promise  to  pay.  [R.  S.  1845,  P-  349>  §  4>'  2d  L.  1849, 

p.  44,  §  i. 

SET-OFF  OR  COUNTER  CLAIM.]  §  17.  A  defendant  may  plead 
a  set-off  or  counter  claim  barred  by  the  statute  of  limitation, 
while  held  and  owned  by  him,  to  any  action,  the  cause  of  which 
was  owned  by  the  plaintiff  or  person  under  whom  he  claims, 
before  such  set-off  or  counter  claim  was  so  barred,  and  not 
otherwise:  Provided,  this  section  shall  not  affect  the  right  of 
a  bona  fide  assignee  of  a  negotiable  instrument  assigned  before 
due. 

NOTES  FOR  PAYMENT  OF  PROPERTY  OTHER  THAN  MONEY 
[REVISED  STATUTES,  CHAPTER  135,  PARAGRAPHS  i  AND  2] 

AN  ACT  to  revise  the  law  in  relation  to  tender.     [Approved 
March  7,  1874.} 

TENDER  OF  PERSONAL  PROPERTY.]  §  i.  Be  it  enacted  by  the 
People  of  the  State  of  Illinois,  represented  in  the  General  As- 
sembly: That  when  any  note,  bond,  bill  or  other  instrument  in 


236       THE  LAW  OF  COMMERCIAL  PAPER 

writing  is  for  the  payment  or  delivery  of  personal  property 
other  than  money,  and  no  particular  place  is  specified  therein 
for  such  payment  or  delivery,  the  maker  may  tender  such  per- 
sonal property  on  the  day  of  payment  or  delivery,  at  the  place 
where  the  obligee  or  payee  resided  or  had  his  place  of  business 
at  the  time  of  the  execution  of  the  instrument.  If  such  per- 
sonal property  is  too  ponderous  to  be  easily  moved,  or  the 
obligee  or  payee  had  not,  at  the  time  of  the  execution  of  such 
instrument,  a  known  place  of  residence  or  business  in  the 
county  where  the  maker  resided,  or  had  his  place  of  business, 
then  tender  may  be  made  at  the  place  where  the  maker  resided 
or  had  his  place  of  business  at  the  time  of  the  execution  of  the 
instrument.  A  tender  made  in  pursuance  of  this  section  shall 
be  equally  valid,  in  case  the  instrument  is  assigned,  as  if  no  as- 
signment had  been  made.  [R.  S.  1845,  P-  3$6,  §  12. 

EFFECT  OF  SUCH  TENDER — PERISHABLE  PROPERTY,  ETC.]  §  2. 
A  legal  tender  of  any  such  personal  property  shall  discharge 
the  maker  of  any  such  instrument  from  all  liability  thereon; 
and  the  property  thus  tendered  shall  be  vested  in  the  legal 
holder  of  the  instrument,  and  he  may  maintain  an  action  for 
the  recovery  thereof,  or  for  damages  if  the  possession  be  sub- 
sequently illegally  withheld  from  him:  Provided,  however,  if 
any  such  property  so  tendered  shall  be  of  a  perishable  nature, 
or  shall  require  feeding  or  other  sustentation,  and  the  holder  of 
such  instrument  be  absent  at  the  time  of  the  tender,  it  shall  be 
lawful  for  the  person  making  the  tender  to  preserve,  feed  and 
otherwise  take  care  of  the  same,  and  he  shall  have  a  lien  on 
such  tendered  property  for  his  reasonable  trouble,  and  the  ex- 
pense of  feeding  or  sustaining  such  property,  until  payment  be 
made,  for  such  trouble  and  expense.  [R.  S.  1845,  P-  3^6,  §  13. 


For  "BILLS  OF  LADING,"  see  Laws  1911,  p.  227,  R.  S.  chapter 
27,  paragraphs  2-57. 

For  "WAREHOUSE  RECEIPTS,"  see  Laws  1907,  p.  477,  R.  S. 
chapter  114,  paragraphs  241-300. 


APPENDIX  237 

Concerning  "ISSUES  BY  PUBLIC  UTILITIES/'  see  Laws  1913,  p. 
470,  R.  S.  chapter  ma,  paragraphs  20-31. 

Concerning  "ISSUES  BY  MUNICIPALITIES  FOR  THE  PURPOSE  OF 
ACQUIRING  A  PUBLIC  UTILITY,"  see  Laws  1913,  p.  456,  R.  S. 
chapter  ma,  paragraphs  94-95. 

"NOTES  SECURED  BY  WAGE  ASSIGNMENTS,"  see  Laws  1913,  p. 
199,  R.  S.  chapter  32,  sections  218-230. 


APPENDIX  II 

NEGOTIABLE  INSTRUMENT  LAW  OF 
WISCONSIN 

The  Negotiable  Instrument  Law  of  Wisconsin.  Chapter  356, 
Laws  of  1899,  as  amended  by  Ch.  268,  1901,  Ch.  438,  1903,  and 
Ch.  262,  1905.  PUBLISHED  UNDER  DIRECTION  OF  J.  A.  Frear, 
Secretary  of  State,  Madison,  Wisconsin.  DEMOCRAT  PRINTING 
COMPANY,  STATE  PRINTER,  1908. 


NEGOTIABLE  INSTRUMENT  LAW 


No.  153,  A.]  [Published  May  15,  1899. 

CHAPTER  356  * 

*This  chapter  is  amended  by  Ch.  268,  1901,  and  Ch.  438,  1903, 
which  add  three  new  sections,  1675 — la  to  1675— -c,  inclusive;  and 
by  Ch.  262,  1905,  which  adds  Sec.  1675 — 24. 

AN  ACT  relating  to  negotiable  instruments  and  to  establish  a 
law  uniform  with  such  other  states  as  have  adopted  or  shall 
adopt  like  provisions,  and  amendatory  of  chapter  78  of  the 
Wisconsin  statutes  of  1898. 

The  people  of  the  state  of  Wisconsin,  represented  in  senate  and 
assembly,  do  enact  as  follows: 

Section  i.  Chapter  seventy-eight  of  the  Wisconsin  statutes 
of  1898  is  hereby  amended  so  as  to  read  as  follows : 


GENERAL  PROVISIONS 

Terms  defined.— Section  1675.    In  tnis  chapter  unless  the  con- 
text otherwise  requires, — 

"Acceptance"  means  an  acceptance  completed  by  delivery  or 
notification. 

"Action"  includes  counter-claim  and  set-off. 

"Bank"  includes  any  person  or  association  of  persons  carry- 
ing on  the  business  of  banking,  whether  incorporated  or  not. 

"Bearer"  means  the  person  in  possession  of  a  bill  or  note 
which  is  payable  to  bearer. 

"Bill"  means  bill  of  exchange,  and  "note"  means  negotiable 
promissory  note. 

241 


242       THE  LAW  OF  COMMERCIAL  PAPER 

"Delivery"  means  transfer  of  possession,  actual  or  construc- 
tive from  one  person  to  another. 

"Holder"  means  the  payee  or  indorsee  of  a  bill  or  note,  who 
is  in  possession  of  it,  or  the  bearer  thereof. 

"Indorsement"  means  an  indorsement  completed  by  delivery. 

"Instrument"  means  negotiable  instrument. 

"Issue"  means  the  first  delivery  of  the  instrument,  complete 
in  form,  to  a  person  who  takes  it  as  a  holder. 

"Person"  includes  a  body  of  persons,  whether  incorporated  or 
not. 

"Value"  means  valuable  consideration. 

"Written"  includes  printed,  and  "writing"  includes  print. 

The  person  "primarily"  liable  on  an  instrument  is  the  person 
who  by  the  terms  of  the  instrument  is  absolutely  required  to 
pay  same.  All  other  parties  are  "secondarily"  liable. 

"Reasonable"  or  "unreasonable  times."— In  determining 
what  is  a  "reasonable  time"  or  an  "unreasonable  time,"  regard 
is  to  be  had  to  the  nature  of  the  instrument,  the  usage  of  trade 
or  business  (if  any)  with  respect  to  such  instruments,  and  the 
facts  of  the  particular  case.  Where  the  day,  or  the  last  day,  for 
doing  any  act  herein  required  or  permitted  to  be  done  falls 
on  Sunday  or  on  a  holiday,  the  act  may  be  done  on  the  next 
succeeding  secular  or  business  day.  The  provisions  of  this 
chapter  do  not  apply  to  negotiable  instruments  made  and  de- 
livered prior  to  the  passage  hereof. 

In  any  case  not  provided  for  in  this  chapter  the  rules  of  the 
law  merchant  shall  govern. 

NEGOTIABLE  INSTRUMENTS  IN  GENERAL 

FORM   AND   INTERPRETATION 

When  instrument  is  negotiable.— Section  1675—1.  An  instru- 
ment to  be  negotiable  must  conform  to  the  following  require- 
ments : 

I.  It  must  be  in  writing  and  signed  by  the  maker  or  drawer. 


APPENDIX  243 

2.  Must  contain  an  unconditional  promise  or  order  to  pay  a 
sum  certain  in  money. 

3.  Must  be  payable  on  demand  or  at  a  fixed  or  determinable 
future  time. 

4.  Must  be  payable  to  order  or  to  bearer. 

5.  Where  the  instrument  is  addressed  to  a  drawee,  he  must 
be  named  or  otherwise  indicated  therein  with  reasonable  cer- 
tainty. 

Orders  of  municipalities.— But  no  order  drawn  upon  or  ac- 
cepted by  the  treasurer  of  any  county,  town,  city,  village  or 
school  district,  whether  drawn  by  any  officer  thereof  or  any 
other  person,  and  no  obligation  nor  instrument  made  by  any 
such  corporation  or  any  officer  thereof,  unless  expressly  author- 
ized by  law  to  be  made  negotiable,  shall  be,  or  shall  be  deemed 
to  be,  negotiable  according  to  the  custom  of  merchants,  in  what- 
ever form  they  may  be  drawn  or  made. 

Warehouse  receipts. — Warehouse  receipts,  bills  of  lading  and 
railroad  receipts  upon  the  face  of  which  the  words  "not  negoti- 
able" shall  not  be  plainly  written,  printed  or  stamped,  shall  be 
negotiable  as  provided  in  section  1676  of  the  Wisconsin  Statutes 
of  1878,  and  in  section  4194  and  4425  of  these  statutes,  as  the 
same  have  been  construed  by  the  supreme  court. 

Words  to  be  printed  on  face  of  note,  when. — Section  1675. — 
la.  (Sec.  i,  ch.  268,  1901,  and  sec.  i,  ch.  438,  1903.)  All  prom- 
issory notes  and  other  evidences  of  indebtedness,  taken  or  given 
for  any  lightning  rod,  patent,  patent  right,  stallion,  or  interest 
therein  as  the  case  may  be,  shall  have  written  or  printed  there- 
on in  red  ink  the  words:  "The  consideration  for  this  note  is 
the  sale  of  a  lightning  rod,  patent,  patent  right,  stallion  or  in- 
terest therein,  as  the  case  may  be." 

Penalty  for  taking  note  without  statement  required. — Section 
1675 — *•  (Sec.  i,  ch.  268,  1901,  and  sec.  2,  ch.  438,  1903.)  Any 
person  who  shall  sell  a  lightning  rod,  patent,  patent  right  or 
stallion,  or  any  interest  in  a  lightning  rod,  patent,  patent  right, 


244       THE  LAW  OF  COMMERCIAL  PAPER 

or  stallion,  who  shall  take  a  promissory  note  or  other  evidence 
of  indebtedness  for  the  whole  or  any  part  of  the  consideration 
thereof,  and  who  shall  fail  to  state  the  consideration  for  said 
note  as  provided  by  section  I  of  this  act,  or  in  words  of  similar 
import,  shall  be  liable  to  a  penalty  equal  to  the  face  of  the  note 
so  taken. 

Notes  taken  for  patent,  etc.,  non-negotiable;  innocent  holder. 
Section  1675 — ic.  (Sec.  3,  ch.  268,  1901,  and  sec.  3,  ch.  438, 
1903.)  All  notes  or  other  evidences  of  indebtedness  taken  as  a 
whole  or  a  part  of  the  consideration  for  any  lightning  rod, 
patent,  patent  right,  stallion,  or  interest  therein,  which  shall  ex- 
press upon  their  face  the  consideration  for  which  they  are 
taken,  as  required  by  section  i  of  this  act,  shall  be  non-negoti- 
able, and  be  subject  to  all  the  defenses  in  the  hands  of  an  in- 
nocent holder  that  the  same  would  have  if  not  transferred. 

Sum  payable,  defined. — Section  1675 — 2-  The  sum  payable  is 
a  sum  certain  within  the  meaning  of  this  chapter,  although  it 
is  to  be  paid: — 

1.  With  interest;  or 

2.  By  stated  installments;  or 

3.  By  stated  installments,  with  a  provision  that  upon  default 
of  payment  of  any  installment  or  of  interest,  the  whole  shall 
become  due;  or 

4.  With  exchange,  whether  at  a  fixed  rate  or  at  the  current 
rate;  or 

5.  With  costs  of  collection  or  an  attorney's  fee,  in  case  pay- 
ment shall  not  be  made  at  maturity. 

Unqualified  order  or  promise. — Section  1675 — 3-  An  unquali- 
fied order  or  promise  to  pay  is  unconditional  within  the  mean- 
ing of  this  chapter,  though  coupled  with : — 

1.  An  indication  of  a  particular  fund  out  of  which  reimburse- 
ment is  to  be  made,  or  a  particular  account  to  be  debited  with 
the  amount ;  or 

2.  A  statement  of  the  transaction  which  gives  rise  to  the  in- 
strument. 


APPENDIX  245 

But  an  order  or  promise  to  pay  out  of  a  particular  fund  is 
not  unconditional. 

Detenninable  future  time.— Section  1675—4.  An  instrument 
is  payable  at  a  determinable  future  time,  within  the  meaning 
of  this  chapter,  which  is  expressed  to  be  payable: — 

1.  At  a  fixed  period  after  date  or  sight;  or 

2.  On  or  before  a  fixed  or  determinable  future  time  specified 
therein ;  or 

3.  On  or  at  a  fixed  period  after  the  occurrence  of  a  specified 
event,  which  is  certain  to  happen,  though  the  time  of  happening 
be  uncertain. 

4.  At  a  fixed  period  after  date  or  sight,  though  payable  be- 
fore then  on  a  contingency.     An  instrument  payable  upon  a 
contingency  is  not  negotiable,  and  the  happening  of  the  event 
does  not  cure  the  defect,  except  as  herein  provided. 

Negotiable  character  not  affected. — Section  1675 — 5-  An  in- 
strument which  contains  an  order  or  promise  to  do  any  act  in 
addition  to  the  payment  of  money  is  not  negotiable.  But  the 
negotiable  character  of  an  instrument  otherwise  negotiable  is 
not  affected  by  a  provision  which : — 

1.  Authorizes  the  sale  of  collateral  securities  in  case  the  in- 
strument be  not  paid  at  maturity;  or 

2.  Authorizes  a  confession  of  judgment  if  the  instrument  be 
not  paid  at  maturity; 

3.  Waives  the  benefit  of  any  law  intended  for  the  advantage 
or  protection  of  the  obligor;  or 

4.  Gives  the  holder  an  election  to  require  something  to  be 
done  in  lieu  of  payment  of  money.    But  nothing  in  this  section 
shall  validate  any  provision  or  stipulation  otherwise  illegal  or 
authorize  the  waiver  of  exemptions  from  execution. 

Validity  and  negotiability  not  affected,  when.— Section  1675 
— 6.  The  validity  and  negotiable  character  of  an  instrument 
are  not  affected  by  the  fact  that: — 

I.  It  is  not  dated;  or 


246       THE  LAW  OF  COMMERCIAL  PAPER 

2.  Does  not  specify  the  value  given,  or  that  any  value  has 
been  given  therefor ;  or 

3.  Does  not  specify  the  place  where  it  is  drawn  or  the  place 
where  it  is  payable;  or 

4.  Bears  a  seal ;  or 

5.  Designate  a  particular  kind  of  current  money  in  which 
payment  is  to  be  made.    But  nothing  in  this  section  shall  alter 
or  repeal  any  statute  requiring  in  certain  cases  the  nature  of 
the  consideration  to  be  stated  in  the  instrument. 

Payable  on  demand,  when. — Section  1675 — 7.  An  instrument 
is  payable  on  demand: — 

1.  Where  it  is  expressed  to  be  payable  on  demand,  or  at  sight, 
or  on  presentation;  or 

2.  In  which  no  time  for  payment  is  expressed.    Where  an  in- 
strument is  issued,  accepted,  or  indorsed,  when  overdue,  it  is,  as 
regards  the  person  so  issuing,  accepting,  or  indorsing  it,  payable 
on  demand. 

Payable  to  order,  when. — Section  1675 — 8.  The  instrument  is 
payable  to  order  where  it  is  drawn  payable  to  the  order  of  a 
specified  person,  or  to  him  or  his  order.  It  may  be  drawn  pay- 
able to  the  order  of: — 

1.  A  payee  who  is  not  maker,  drawer,  or  drawee;  or 

2.  The  drawer  or  maker ;  or 

3.  The  drawee;  or 

4.  Two  or  more  payees  jointly;  or 

5.  One  or  some  of  several  payees;  or 

6.  The  holder  of  an  office  for  the  time  being.    Where  the  in- 
strument is  payable  to  order,  the  payee  must  be  named  or  other- 
wise indicated  therein  with  reasonable  certainty. 

Payable  to  bearer,  when.— Section  1675—9.  The  instrument 
is  payable  to  bearer : — 

1.  When  it  is  expressed  to  be  so  payable;  or 

2.  When  it  is  payable  to  a  person  named  therein  or  bearer; 
or 

3.  When  it  is  payable  to  the  order  of  a  fictitious  or  non-exist- 


APPENDIX  247 

ing  person,  and  such  fact  was  known  to  the  person  making  it 
so  payable ;  or 

4.  When  the  name  of  the  payee  does  not  purport  to  be  the 
name  of  any  person;  or 

5.  When  the  only  or  last  indorsement  is  an  indorsement  in 
blank. 

Effect  of  memoranda  on  instrument. — Section  1675 — 10.  The 
instrument  need  not  follow  the  language  of  this  chapter,  but  any 
terms  are  sufficient  which  clearly  indicate  an  intention  to  con- 
form to  the  requirements  hereof.  Memoranda  upon  the  face 
or  back  of  the  instrument,  whether  signed  or  not,  material  to 
the  contract,  if  made  at  the  time  of  delivery,  are  part  of  the  in- 
strument, and  pared  evidence  is  admissible  to  show  the  circum- 
stances under  which  they  were  made. 

Date  prima  facie  evidence. — Section  1675 — n.  Where  the  in- 
strument or  an  acceptance  of  any  endorsement  thereon  is  dated, 
such  date  is  deemed  prima  facie  to  be  the  true  date  of  the  mak- 
ing, drawing,  acceptance,  or  indorsement  as  the  case  may  be. 

Ante  or  post  dating. — Section  1675 — 12.  The  instrument  is 
not  invalid  for  the  reason  that  it  is  ante-dated  or  post-dated, 
provided  that  this  is  not  done  for  an  illegal  or  fraudulent  pur- 
pose. The  person  to  whom  an  instrument  so  dated  is  delivered 
acquires  the  title  thereto  as  of  the  date  of  delivery. 

Undated  instruments. — Section  1675 — 13.  Where  an  instru- 
ment expressed  to  be  payable  at  a  fixed  period  after  date  is 
issued  undated,  or  where  the  acceptance  of  an  instrument  pay- 
able at  a  fixed  period  after  sight  is  undated,  any  holder  may  in- 
sert therein  the  true  date  of  issue  or  acceptance,  and  the  instru- 
ment shall  be  payable  accordingly.  The  insertion  of  a  wrong 
date  does  not  avoid  the  instrument  in  the  hands  of  a  subsequent 
holder  in  due  course ;  but  as  to  him,  the  date  so  inserted  is  to  be 
regarded  as  the  true  date. 

Uncompleted  instruments. — Section  1675 — 14.    Where  the  in- 


248       THE  LAW  OF  COMMERCIAL  PAPER 

strument  is  wanting  in  any  material  particular,  the  person  in 
possession  thereof  has  a  prima  facie  authority  to  complete  it 
prior  to  negotiation  by  filling  up  the  blanks  therein.  And  a  sig- 
nature on  a  blank  paper  delivered  by  the  person  making  the  sig- 
nature in  order  that  the  paper  may  be  converted  into  a  negoti- 
able instrument  operates  as  an  authority  to  fill  it  up  as  such 
for  any  amount.  In  order,  however,  that  any  such  instrument 
when  complete  may  be  enforced  against  any  person  who  became 
a  party  thereto  prior  to  completion,  it  must  be  filled  up  strictly 
in  accordance  with  the  authority  given  and  within  a  reasonable 
time.  But  if  any  such  instrument,  after  completion,  is  nego- 
tiated to  a  holder  in  due  course,  it  is  valid  and  effectual  for  all 
purposes  in  his  hands,  and  he  may  enforce  it  as  if  it  had  been 
filled  up  strictly  in  accordance  with  the  authority  given  and 
within  a  reasonable  time. 

Incomplete  instruments  completed  without  authority. — Sec- 
tion 1675 — 15.  Where  an  incomplete  instrument  has  not  been 
delivered  it  will  not,  if  completed  and  negotiated,  without  au- 
thority, be  a  valid  contract  in  the  hands  of  any  holder,  as  against 
any  person  whose  signature  was  placed  thereon  before  negotia- 
tion. 

Contracts  on  negotiable  paper,  when  incomplete.— Section  1675 
— 1 6.  Every  contract  on  a  negotiable  instrument  is  incomplete 
and  revocable  until  delivery  of  the  instrument  for  the  purpose 
of  giving  effect  thereto.  As  between  immediate  parties,  and  as 
regards  a  remote  party  other  than  a  holder  in  due  course,  the 
delivery,  in  order  to  be  effectual,  must  be  made  either  by  or  un- 
der the  authority  of  the  party  making,  drawing,  accepting  or 
indorsing,  as  the  case  may  be ;  and  in  such  case  the  delivery  may 
be  shown  to  have  been  conditional,  or  for  a  special  purpose  only, 
and  not  for  the  purpose  of  transferring  the  property  in  the  in- 
strument. But  where  the  instrument  is  in  the  hands  of  a 
holder  in  due  course,  a  valid  delivery  thereof  by  all  parties 
prior  to  him  so  as  to  make  them  liable  to  him  is  conclusively 
presumed.  And  where  the  instrument  is  no  longer  in  the  pos- 
session of  a  party  whose  signature  appears  thereon,  a  valid  and 


APPENDIX  249 

intentional  delivery  by  him  is  presumed  until  the  contrary  is 
proved. 


Construction  of  ambiguities. — Section  1675 — 17.  Where  the 
language  of  the  instrument  is  ambiguous,  or  there  are  omis- 
sions therein,  the  following  rules  of  construction  apply : — 

1.  Where  the  sum  payable  is  expressed  in  words  and  also  in 
figures  and  there  is  a  discrepancy  between  the  two,  the  sum  de- 
noted by  the  words  is  the  sum  payable ;  but  if  the  words  are  am- 
biguous or  uncertain,  references  may  be  had  to  the  figures  to 
fix  the  amount ; 

2.  Where  the  instrument  provides  for  the  payment  of  inter- 
est, without  specifying  the  date  from  which  interest  is  to  run, 
the  interest  runs  from  the  date  of  the  instrument,  and  if  the  in- 
strument is  undated,  from  the  issue  thereof; 

3.  Where  the  instrument  is  not  dated,  it  will  be  considered  to 
be  dated  as  of  the  time  it  was  issued; 

4.  Where  there  is  a  conflict  between  the  written  and  printed 
provisions  of  the  instrument,  the  written  provisions  prevail. 

5.  Where  the  instrument  is  so  ambiguous  that  there  is  doubt 
whether  it  is  a  bill  or  note,  the  holder  may  treat  it  as  either  at 
his  election. 

6.  Where  a  signature  is  so  placed  upon  the  instrument  that 
it  is  not  clear  in  what  capacity  the  person  making  the  same  in- 
tended to  sign,  he  is  to  be  deemed  an  indorser; 

7.  Where  an  instrument  containing  the  words  "I  promise  to 
pay"  is  signed  by  two  or  more  persons,  they  are  deemed  to  be 
jointly  and  severally  liable  thereon;  _^^ — ___ 

~~  8.  Where  several  writings  are  executed  at  or  about  the  same 
time,  as  parts  of  the  same  transaction,  intended  to  accomplish 
the  same  object,  they  may  be  construed  as  one  and  the  same  in- 
strument as  to  all  parties  having  notice  thereof. 

Trade  or  assumed  names. — Section  1675 — 18.  No  person  is 
liable  on  the  instrument  whose  signature  does  not  appear  there- 
on, except  as  herein  otherwise  expressly  provided.  But  one 


250       THE  LAW  OF  COMMERCIAL  PAPER 

who  signs  in  a  trade  or  assumed  name  will  be  liable  to  the  same 
extent  as  if  he  had  signed  his  own  name. 

Signature  by  agent. — Section  1675 — 19.  The  signature  of  any 
party  may  be  made  by  a  duly  authorized  agent.  No  particular 
form  of  appointment  is  necessary  for  this  purpose;  and  the 
authority  of  the  agent  may  be  established  as  in  other  cases  of 
agency. 

Agent  not  liable. — Section  1675 — 20.  Where  the  instrument 
contains  or  a  person  adds  to  his  signature  words  indicating  that 
he  signs  for  or  on  behalf  of  a  principal,  or  in  a  representative 
capacity,  he  is  not  liable  on  the  instrument  if  he  was  duly  au- 
thorized; but  the  mere  addition  of  words  describing  him  as  an 
agent,  or  as  filling  a  representative  character,  without  disclos- 
ing his  principal,  does  not  exempt  him  from  personal  liability. 

Signature  by  "procuration." — Section  1675 — 21.  A  signa- 
ture by  "procuration"  operates  as  notice  that  the  agent  has  but 
a  limited  authority  to  sign,  and  the  principal  is  bound  only  in 
case  the  agent  in  so  signing  acted  within  the  actual  limits  of  his 
authority. 

Indorsement  by  corporation  or  infant. — Section  1675 — 22. 
The  indorsement  or  assignment  of  the  instrument  by  a  corpora- 
tion or  by  an  infant  passes  the  property  therein,  notwithstand- 
ing that  from  want  of  capacity  the  corporation  or  jnfant  may 
incur  no  liability  thereon. 

Forgery. — Section  1675 — 23.  Whe-e  a  signature  is  forged  or 
made  without  the  authority  of  the  person  whose  signature  it 
purports  to  be,  it  is  wholly  inoperative,  and  no  right  to  retain 
the  instrument,  or  to  give  a  discharge  therefor,  or  to  enforce 
payment  thereof  against  any  party  thereto,  can  be  acquired 
through  or  under  such  signature,  unless  the  party,  against  whom 
it  is  sought  to  enforce  such  right,  is  precluded  from  setting  up 
the  forgery  or  want  of  authority. 


APPENDIX  251 

Bank,  forged  check;  limitation. — Section  1675 — 24  (Ch.  262, 
1905).  No  bank  shall  be  liable  to  any  depositor  for  the 
payment  by  it  of  a  forged  or  raised  check  unless  action  therefor 
shall  be  brought  against  such  bank  within  one  year  after  the  re- 
turn to  the  depositor  by  such  bank  of  the  check  so  forged  or 
raised  as  a  voucher. 


CONSIDERATION 

Presumptions. — Section  1675 — 50.  Every  negotiable  instru- 
ment is  deemed  prima  facie  to  have  been  issued  for  a  valuable 
consideration ;  and  every  person  whose  signature  appears  there- 
on to  have  become  a  party  thereto  for  value. 

Value,  defined. — Section  1675 — 51.  Value  is  any  considera- 
tion sufficient  to  support  a  simple  contract.  An  antecedent  or 
preexisting  debt,  discharged,  extinguished  or  extended,  consti- 
tutes value ;  and  is  deemed  such  whether  the  instrument  is  pay- 
able on  demand  or  at  a  future  time.  But  the  indorsement  or  de- 
livery of  negotiable  paper  as  collateral  security  for  a  preexist- 
ing debt,  without  other  consideration,  and  not  in  pursuance  of 
an  agreement  at  the  time  of  delivery,  by  the  maker,  does  not 
constitute  value. 

Value  presumed. — Section  1675 — 52.  Where  value  has  at  any 
time  been  given  for  the  instrument,  the  holder  is  deemed  a 
holder  for  value  in  respect  to  all  parties  who  became  such  prior 
to  that  time. 

When  holder  has  lien. — Section  1675 — 53.  Where  the  holder 
has  a  lien  on  the  instrument,  arising  either  from  contract  or  by 
implication  of  law,  he  is  deemed  a  holder  for  value  to  the  ex- 
tent of  his  lien. 

Absence  of  consideration  matter  of  defense.— Section  1675— 
54.  Absence  or  failure  of  consideration  is  matter  of  defense  as 
against  any  person  not  a  holder  in  due  course;  and  partial  fail- 


252       THE  LAW  OF  COMMERCIAL  PAPER 

ure  of  consideration  is  a  defense  pro  tanto,  whether  the  failure 
is  an  ascertained  and  liquidated  amount  or  otherwise. 

Accommodation  party  defined. — Section  1675 — 55-  An  ac- 
commodation party  is  one  who  has  signed  the  instrument  as 
maker,  drawer,  acceptor,  or  indorser,  without  receiving  value 
therefor,  and  for  the  purpose  of  lending  his  name  to  some  other 
person.  Such  a  person  is  liable  on  the  instrument  to  a  holder 
for  value,  notwithstanding  such  holder  at  the  time  of  taking  the 
instrument  knew  him  to  be  only  an  accommodation  party. 

NEGOTIATION 


Instrument,  when  negotiated. — Section  1676.  An  instrument 
is  negotiated  when  it  is  transferred  from  one  person  to  another 
in  such  manner  as  to  constitute  the  transferee  the  holder  there- 
of. If  payable  to  bearer,  it  is  negotiated  by  delivery;  if  payable 
to  order  it  is  negotiated  by  the  indorsement  of  the  holder  com- 
pleted by  delivery. 

^Indorsement,  what  is. — Section  1676 — I.  The  indorsement 
must  be  written  on  the  instrument  itself  or  upon  a  paper  at- 
tached thereto.  The  signature  of  the  indorser,  without  addi- 
tional words,  is  a  sufficient  indorsement. 

Indorsement  is^entire.-— Section  1676 — 2.  The  indorsement 
must  be  an  indorsement^bf  the  entire  instrument.  An  indorse- 
ment which  purports  to  transfer  to  the  indorsee  a  part  only  of 
the  amount  payable,  or  which  purports  to  transfer  the  instru- 
ment to  two  or  more  indorsees  severally,  does  not  operate  as  a 
negotiation  of  the  instrument.  But  where  the  instrument  has 
been  paid  in  part,  it  may  be  indorsed  as  to  the  residue. 

Special  or  blank  indorsement. — Section  1676 — 3.  An  indorse- 
ment may  be  either  special  or  in  blank ;  and  it  may  also  be  either 
restrictive  or  qualified,  or  conditional. 

What  special  or  blank  indorsement. — Section  1676 — 4.     A 


APPENDIX  253 

special  indorsement  specifies  the  person  to  whom,  or  to  whose 
order,  the  instrument  is  to  be  payable;  and  the  indorsement  of 
such  indorsee  is  necessary  to  the  further  negotiation  of  the  in- 
strument. An  indorsement  in  blank  specifies  no  indorsee,  and 
an  instrument  so  indorsed  is  payable  to  bearer,  and  may  be 
negotiated  by  delivery. 

Conversion  of  blank  into  special  indorsement.  —  Section  1676 
—  5.  The  holder  may  convert  a  blank  indorsement  into  a  special 
indorsement  by  writing  over  the  signature  of  the  indorser  in 
blank  any  contract  consistent  with  the  character  of  the  indorse- 
ment. 

Restrictive  indorsement.  —  Section  1676  —  6.  An  indorsement 
is  restrictive  which  either: 

1.  Prohibits  the  further  negotiation  of  the  instrument;  or 

2.  Constitutes  the  indorsee  the  agent  of  the  indorser;  or 

3.  Vests  the  title  in  the  indorsee  in  trust  for  or  to  the  use  of 
some  other  person.     But  the  mere  absence  of  words  implying 
power  to  negotiate  does  not  make  an  indorsement  restrictive. 

Section  1676  —  7.  A  restrictive  indorsement  confers  upon  the 
indorsee  the  right: 

1.  To  receive  payment  of  the  instrument; 

2.  To  bring  any  action  thereon  that  the  indorser  could  bring; 

3.  To  transfer  his  rights  as  such  indorsee,  where  the  form  of 
the  indorsement  authorizes  him  to  do  so. 

But  all  subsequent  indorsees  acquire  only  the  title  of  the  first 
indorsee  under  the  restrictive  indorsement. 

_  Qualified  indorsement.—  Section  1676  —  8.  A  qualified  in- 
dorsement constitutes  the  indorser  a  mere  assignor  of  the  title 
to  the  instrument.  It  may  be  made  by  adding  to  the  indorsees 
signature  the  words  "without  recourse"  or  any  words  of  similar 
import.  Such  an  indorsement  does  not  impair  the  negotiable 
character  of  the  instrument. 


^Jndojreementi  —  Section   1676  —  9.     Where  an  in- 
dorsement is  conditional,  a  party  required  to  pay  the  instrument 


254       THE  LAW  OF  COMMERCIAL  PAPER 

may  disregard  the  condition,  and  make  payment  to  the  indorsee 
or  his  transferee,  whether  the  condition  has  been  fulfilled  or 
not.  But  any  person  to  whom  an  instrument  so  endorsed  is  ne- 
gotiated, will  hold  the  same,  or  the  proceeds  thereof,  subject 
to  the  rights  of  the  person  indorsing  conditionally. 

Indorsements  of  instalments  payable  to  bearer.— Section 
1676 — 10.  Where  an  instrument,  payable  to  bearer,  is  en- 
dorsed specially,  it  may  nevertheless  be  further  negotiated  by 
delivery;  but  the  person  indorsing  specially  is  liable  as  indorser 
to  only  such  holders  as  make  title  through  his  indorsement. 

Instruments  payable  to  two  or  more  persons. — Section  1676 — 
ii.  Where  an  instrument  is  payable  to  the  order  of  two  or  more 
payees  or  joint  indorsees  who  are  not  partners,  all  must  indorse, 
unless  the  one  indorsing  has  authority  to  indorse  for  the  others. 

When  drawn  to  fiscal  officer. — Section  1676 — 12.  Where  an 
instrument  is  drawn  or  indorsed  to  a  person  as  "cashier"  or 
other  fiscal  officer  of  a  bank  or  corporation,  it  is  deemed  prima 
facie  to  be  payable  to  the  bank  or  corporation  of  which  he  is 
such  officer;  and  may  be  negotiated  by  either  the  indorsement 
of  the  bank  or  corporation,  or  the  indorsement  of  the  officer. 

Misspelled  names. — Section  1676 — 13.  Where  the  name  of  a 
payee  or  indorsee  is  wrongly  designated  or  misspelled,  he  may 
indorse  the  instrument  as  therein  described,  adding,  if  he  thinks 
fit,  his  proper  signature. 

Negative  personal  liability. — Section  1676 — 14.  Where  any 
person  is  under  obligation  to  indorse  in  a  representative  ca- 
pacity, he  may  indorse  in  such  terms  as  to  negative  personal 
liability. 

Prima  facie  evidence  of  negotiation. — Section  1676 — 15.  Ex- 
cept where  an  indorsement  bears  date  after  the  maturity  of  the 
instrument,  every  negotiation  is  deemed  prima  facie  to  have 
been  effected  before  the  instrument  was  overdue. 


APPENDIX  255 

Presumption. — Section  1676 — 16.  Except  where  the  contrary 
appears  every  indorsement  is  presumed  prima  facie  to  have 
been  made  at  the  place  where  the  instrument  is  dated. 

Length  of  negotiability. — Section  1676 — 17.  An  instrument 
negotiable  in  its  origin  continues  to  be  negotiable  until  it  has 
been  restrictively  indorsed  or  discharged  by  payment  or  other- 
wise. 

Erasing  indorsements. — Section  1676—18.  The  holder  may 
at  any  time  strike  out  any  indorsement  which  is  not  necessary 
to  his  title.  The  indorser  whose  indorsement  is  struck  out,  and 
all  indorsers  subsequent  to  him  are  thereby  relieved  from  liabil- 
ity on  the  instrument. 

Transfer  without  indorsements;  subsequent  indorsement. — 
Section  1676 — 19.  Where  the  holder  of  an  instrument  payable 
to  his  order  transfers  it  for  value  without  indorsing  it,  the 
transfer  vests  in  the  transferee  such  title  as  the  transferer  had 
therein,  and  the  transferee  acquires,  in  addition,  the  right  to 
have  the  indorsement  of  the  transferer.  But  for  the  purpose  of 
determining  whether  the  transferee  is  a  holder  in  due  course, 
the  negotiation  takes  effect  as  of  the  time  when  the  indorsement 
is  actually  made.  When  the  indorsement  was  omitted  by  mis- 
take, or  there  was  an  agreement  to  endorse  made  at  the  time  of 
the  transfer,  the  indorsement,  when  made,  relates  back  to  the 
time  of  transfer. 

Re-issue  by  prior  party. — Section  1676 — 20.  Where  an  in- 
strument is  negotiated  back  to  a  prior  party,  such  party  may, 
subject  to  the  provisions  of  this  act,  re-issue  and  further  nego- 
tiate the  same.  But  he  is  not  entitled  to  enforce  payment  there- 
of against  any  intervening  party  to  whom  he  was  personally 
liable. 

RIGHTS    OF    THE    HOLDER 

Holder  may  sue. — Section  1676 — 21.  The  holder  of  a  nego- 
tiable instrument  may  sue  thereon  in  his  own  name;  and 


256       THE  LAW  OF  COMMERCIAL  PAPER 
payment   to   him    in   due    course   discharges   the   instrument. 

Holder  in  due  course. — Section  1676 — 22.  A  holder  in  due 
course  is  a  holder  who  has  taken  the  instrument  under  the  fol- 
lowing conditions : 

1.  That  it  is  complete  and  regular  upon  its  face; 

2.  That  he  became  the  holder  of  it  before  it  was  overdue,  and 
without  notice  that  it  had  been  previously  dishonored,  if  such 
was  the  fact; 

3.  That  he  took  it  in  good  faith  and  for  value. 

4.  That  at  the  time  it  was  negotiated  to  him  he  had  no  notice 
of  any  infirmity  in  the  instrument  or  defect  in  the  title  of  the 
person  negotiating  it. 

5.  That  he  took  it  in  the  usual  course  of  business. 

When  not  a  holder  in  due  course. — Section  1676 — 23.  When 
an  instrument  payable  on  demand  is  negotiated  an  unreasonable 
length  of  time  after  its  issue,  the  holder  is  not  deemed  a  holder 
in  due  course. 

Notice  of  infirmity  in  the  instrument. — Section  1676 — 24. 
Where  the  transferee  receives  notice  of  any  infirmity  in  the  in- 
strument or  defect  in  the  title  of  the  person  negotiating  the 
same  before  he  has  paid  therefor  the  full  amount  agreed  to  be 
paid  he  will  be  deemed  a  holder  in  due  course  only  to  the  ex- 
tent of  the  amount  theretofore  paid  by  him. 

Defective  title.— Section  1676—25.  The  title  of  a  person  who 
negotiates  an  instrument  is  defective  within  the  meaning  of  this 
act  when  he  obtains  the  instrument,  or  any  signature  thereto, 
by  fraud,  duress,  or  force  or  fear,  or  other  unlawful  means,  or 
for  an  illegal  consideration,  or  when  he  negotiates  it  in  breach 
of  faith,  or  under  such  circumstances  as  amount  to  a  fraud  and 
the  title  of  such  person  is  absolutely  void  when  such  instrument 
or  signature  was  so  procured  from  a  person  who  did  not  know 
the  nature  of  the  instrument  and  could  not  have  obtained  such 
knowledge  by  the  use  of  ordinary  care. 


APPENDIX  257 

Actual  knowledge  of  infirmity  necessary  to  notice.— Section 
1676 — 26.  To  constitute  notice  of  an  infirmity  in  the  instru- 
ment or  defect  in  the  title  of  the  person  negotiating  the  same, 
the  person  to  whom  it  is  negotiated  must  have  had  actual  knowl- 
edge of  the  infirmity  or  defect,  or  knowledge  of  such  facts  that 
his  action  in  taking  the  instrument  amounted  to  bad  faith. 


Rights  of  holder  in  due  course;  insurance  premiums;  fraud. 
— Section  1676 — 27.  A  holder  in  due  course  holds  the  instru- 
ment free  from  any  defect  of  title  of  prior  parties,  and  free 
from  defenses  available  to  prior  parties  among  themselves  and 
may  enforce  payment  of  the  instrument  for  the  full  amount 
thereof  against  all  parties  liable  thereon  except  as  provided  in 
sections  1944  and  1945  of  these  statutes,  relating  to  insurance 
premiums,  and  also  in  cases  where  the  title  of  the  person  ne- 
gotiating such  instrument  is  void  under  the  provisions  of  sec- 
tion 1676 — 25  of  this  act. 

Holder,  other  than  in  due  course. — Section  1676 — 28.  In  the 
hands  of  any  holder  other  than  a  holder  in  due  course,  a  negoti- 
able instrument  is  subject  to  the  same  defenses  as  if  it  were 
non-negotiable.  But  a  holder  who  derives  his  title  through  a 
holder  in  due  course,  and  who  is  not  himself  a  party  to  any 
fraud,  duress  or  illegality  affecting  the  instrument,  has  all  the 
rights  of  such  former  holder  in  respect  of  all  parties  prior  to 
such  holder. 


Burden  of  proof  as  to  title. — Section  1676 — 29.  Every  holder 
is  deemed  prima  facie  to  be  a  holder  in  due  course;  but  when 
it  is  shown  that  the  title  of  any  person  who  has  negotiated  the 
instrument  was  defective,  the  burden  is  on  the  holder  to  prove 
that  he  or  some  person  under  whom  he  claims  acquired  the  title 
in  due  course.  But  the  last  mentioned  rule  does  not  apply  in 
favor  of  a  party  who  became  bound  on  the  instrument  prior  to 
the  acquisition  of  such  defective  title. 


258       THE  LAW  OF  COMMERCIAL  PAPER 

LIABILITY    OF    PARTIES 

Maker. — Section  1677.  The  maker  of  a  negotiable  instrument 
by  making  it  engages  that  he  will  pay  it  according  to  its  tenor ; 
and  admits  the  existence  of  the  payee  and  his  then  capacity  to 
indorse. 

Drawer.— Section  1677—1.  The  drawer  by  drawing  the  in- 
strument admits  the  existence  of  the  payee  and  his  then  capac- 
ity to  endorse;  and  engages  that  on  due  presentment  the  in- 
strument will  be  accepted  or  paid,  or  both,  according  to  its  tenor, 
and  that  if  it  be  dishonored,  and  the  necessary  proceedings  on 
dishonor  be  duly  taken,  he  will  pay  the  amount  thereof  to  the 
holder,  or  to  any  subsequent  indorser  who  may  be  compelled  to 
pay  it.  But  the  drawer  may  insert  in  the  instrument  an  express 
stipulation  negativing  or  limiting  his  own  liability  to  the  holder. 

Acceptor. — Section  1677. — 2.  The  acceptor  by  accepting  the 
instrument  engages  that  he  will  pay  it  according  to  the  tenor  of 
his  acceptance;  and  admits: 

1.  The  existence  of  the  drawer,  the  genuineness  of  his  sig- 
nature, and  his  capacity  and  authority  to  draw  the  instrument ; 
and, 

2.  The  existence  of  the  payee  and  his  then  capacity  to  in- 
dorse. 

Indorser. — Section  1677 — 3.  A  person  placing  his  signature 
upon  an  instrument  otherwise  than  as  maker,  drawer  or  ac- 
ceptor is  deemed  to  be  an  indorser,  unless  he  clearly  indicates 
by  appropriate  words  his  intention  to  be  bound  in  some  other 
capacity. 

Liability  of  indorser  in  blank. — Section  1677 — 4.  Where  a 
person,  not  otherwise  a  party  to  an  instrument,  places  thereon 
his  signature  in  blank  before  delivery,  he  is  liable  as  indorser 
in  accordance  with  the  following  rules: 

1.  If  the  instrument  is  payable  to  the  order  of  a  third  person 
he  is  liable  to  the  payee  and  to  all  subsequent  parties. 

2.  If  the  instrument  is  payable  to  the  order  of  the  maker  or 


APPENDIX  259 

drawer,  or  is  payable  to  bearer,  he  is  liable  to  all  parties  sub- 
sequent to  the  maker  or  drawer. 

3.  If  he  sign  for  the  accommodation  of  the  payee,  he  is  liable 
to  all  parties  subsequent  to  the  payee. 

Warranty. — Section  1677 — 5.  Every  person  negotiating  an 
instrument  by  delivery  or  by  a  qualified  indorsement  warrants : 

1.  That  the  instrument  is  genuine  and  in  all  respects  what  it 
purports  to  be. 

2.  That  he  has  good  title  to  it. 

3.  That  all  prior  parties  had  capacity  to  contract; 

4.  That  he  has  no  knowledge  of  any  fact  which  would  impair 
the  validity  of  the  instrument  or  render  it  valueless. 

But  when  the  negotiation  is  by  delivery  only,  the  warranty 
extends  in  favor  of  no  holder  other  than  the  immediate  trans- 
feree. 

The  provisions  of  subdivision  three  of  this  section  do  not 
apply  to  persons  negotiating  public  or  corporate  securities,  other 
than  bills  and  notes. 

Warranty  of  indorser  without  qualification. — Section  1677 — 
6.  Every  indorser  who  indorses  without  qualification,  warrants 
to  all  subsequent  holders  in  due  course: 

1.  The  matters  and  things  mentioned  in  subdivisions  one,  two 
and  three  of  the  next  preceding  section;  and, 

2.  That  the  instrument  is  at  the  time  of  his  indorsement  valid 
and  subsisting. 

And  in  addition,  he  engages  that  on  due  presentment,  it 
shall  be  accepted  or  paid,  or  both,  as  the  case  may  be,  accord- 
ing to  its  tenor,  and  that  if  it  is  dishonored,  and  the  necessary 
proceedings  on  dishonor  be  duly  taken,  he  will  pay  the  amount 
thereof  to  the  holder,  or  to  any  subsequent  indorser  who  may 
be  compelled  to  pay  it. 

Indorsement  of  instrument  negotiable  by  delivery. — Section 
1677 — 7.  When  a  person  places  his  indorsement  on  an  instru- 
ment negotiable  by  delivery  he  incurs  all  the  liabilities  of  an 
indorser. 


260       THE  LAW  OF  COMMERCIAL  PAPER 

Indorsers  liable  in  order  of  indorsement. — Section  1677 — 8. 
As  respects  one  another,  indorsers  are  liable  prima  facie  in  the 
order  in  which  they  indorse ;  but  evidence  is  admissible  to  show 
that  as  between  or  among  themselves  they  have  agreed  other- 
wise. Joint  payees  or  joint  indorsees  who  indorse  are  deemed 
to  indorse  jointly  and  severally. 

Negotiation  without  indorsement  by  broker. — Section  1677 — 9. 
When  a  broker  or  other  agent  negotiates  an  instrument  without 
indorsement,  he  incurs  all  the  liabilities  prescribed  by  section 
1677 — 5,  unless  he  discloses  the  name  of  his  principal,  and  the 
fact  that  he  is  acting  only  as  an  agent. 

PRESENTMENT   FOR    PAYMENT 

Presentment  when  necessary. — Section  1678.  Presentment 
for  payment  is  not  necessary  in  order  to  charge  the  person 
primarily  liable  on  the  instrument.  But  except  as  herein  other- 
wise provided,  presentment  for  payment  is  necessary  in  order 
to  charge  the  drawer  and  indorsers. 

Instruments  payable  on  demand. — Section  1678 — i.  Where 
the  instrument  is  not  payable  on  demand  presentment  must  be 
made  on  the  day  it  falls  due.  Where  it  is  payable  on  demand, 
presentment  must  be  made  within  a  reasonable  time  after  its 
issue,  except  that  in  the  case  of  a  bill  of  exchange,  presentment 
for  payment  will  be  sufficient  if  made  within  a  reasonable  time 
after  the  last  negotiation  thereof. 

Sufficient  presentment. — Section  1678 — 2.  Presentment  for 
payment,  to  be  sufficient,  must  be  made: 

1.  By  the  holder,  or  by  some  person  authorized  to  receive  pay- 
ment on  his  behalf; 

2.  At  a  reasonable  hour  on  a  business  day; 

3.  At  a  proper  place  as  herein  defined; 

4.  To  the  person  primarily  liable  on  the  instrument,  or  if  he 
is  absent  or  inaccessible,  to  any  person  found  at  the  place  where 
the  presentment  is  made. 


APPENDIX  261 

Presentment  at  proper  place.— Section  1678—3.  Presentment 
for  payment  is  made  at  the  proper  place : 

1.  Where  a  place  of  payment  is  specified  in  the  instrument 
and  it  is  there  presented; 

2.  Where  no  place  of  payment  is  specified,  but  the  address 
of  the  person  to  make  payment  is  given  in  the  instrument  and  it 
is  there  presented; 

3.  Where  no  place  of  payment  is  specified,  and  no  address  is 
given  and  the  instrument  is  presented  at  the  usual  place  of 
business  or  residence  of  the  person  to  make  payment; 

4.  In  any  other  case  if  presented  to  the  person  to  make  pay- 
ment wherever  he  can  be  found,  or  if  presented  at  his  last 
known  place  of  business  or  residence. 

Exhibition  of  instrument. — Section  1678 — 4.  The  instrument 
must  be  exhibited  to  the  person  from  whom  payment  is  de- 
manded, and  when  it  is  paid  must  be  delivered  up  to  the  party 
paying  it. 

During  banking  hours.— Section  1678—5.  Where  the  instru- 
ment is  payable  at  a  bank,  presentment  for  payment  must  be 
made  during  banking  hours,  unless  the  person  to  make  payment 
has  no  funds  there  to  meet  it  at  any  time  during  the  day,  in 
which  case  presentment  at  any  hour  before  the  bank  is  closed 
on  that  day  is  sufficient. 

In  case  of  death.— Section  1678—6.  Where  the  person  pri- 
marily liable  on  the  instrument  is  dead,  and  no  place  of  payment 
is  specified,  presentment  for  payment  must  be  made  to  his  per- 
sonal representative,  if  such  there  be,  and  if,  with  the  exercise 
of  reasonable  diligence,  he  can  be  found. 

Partners. — Section  1678 — 7.  Where  the  persons  primarily 
liable  on  the  instrument  are  liable  as  partners  and  no  place  of 
payment  is  specified,  presentment  for  payment  may  be  made  to 
any  one  of  them,  even  though  there  has  been  a  dissolution  of 
the  firm. 


262       THE  LAW  OF  COMMERCIAL  PAPER 

Joint  debtors. — Section  1678 — 8.  Where  there  are  several 
persons,  not  partners,  primarily  liable  on  the  instrument,  and  no 
place  of  payment  is  specified,  presentment  must  be  made  to 
them  all. 

In  order  to  charge  drawer.— Section  1678—9.  Presentment 
for  payment  is  not  required  in  order  to  charge  the  drawer  where 
he  has  no  right  to  expect  or  require  that  the  drawee  or  acceptor 
will  pay  the  instrument. 

In  order  to  charge  indoraer. — Section  1678 — 10.  Presentment 
for  payment  is  not  required  in  order  to  charge  an  indorser 
where  the  instrument  was  made  or  accepted  for  his  accommo- 
dation, and  he  has  no  reason  to  expect  that  the  instrument  will 
be  paid  if  presented. 

Delay,  when  excused. — Section  1678 — n.  Delay  in  making 
presentment  for  payment  is  excused  when  the  delay  is  caused 
by  circumstances  beyond  the  control  of  the  holder,  and  not  im- 
putable  to  his  default,  misconduct  or  negligence.  When  the 
cause  of  delay  ceases  to  operate,  presentment  must  be  made  with 
reasonable  diligence. 

When  dispensed  with. — Section  1678 — 12.  Presentment  for 
payment  is  dispensed  with : 

1.  Where  after  the  exercise  of  reasonable  diligence  present- 
ment as  required  by  this  chapter  cannot  be  made. 

2.  Where  the  drawee  is  a  fictitious  person; 

3.  By  waiver  of  presentment  express  or  implied. 


DISHONOR 

By  non-payment. — Section  1678 — 13.    The  instrument  is  dis- 
honored by  non-payment  when : 

1.  It  is  duly  presented  for  payment  and  payment  is  refused  or 
cannot  be  obtained ;  or, 

2.  Presentment  is  excused  and  the  instrument  is  overdue  and 
unpaid. 


APPENDIX  263 

Eight  of  recourse  of  holder. — Section  1678 — 14.  Subject  to 
the  provisions  of  this  act,  when  the  instrument  is  dishonored 
by  non-payment,  an  immediate  right  of  recourse  to  all  parties 
secondarily  liable  thereon,  accrues  to  the  holder. 

Without  grace — maturity. — Section  1678 — 15.  Every  negoti- 
able instrument  is  payable  at  the  time  fixed  therein  without 
grace.  When  the  day  of  maturity  falls  upon  a  Sunday,  or  a 
holiday,  the  instrument  is  payable  on  the  next  succeeding  busi- 
ness day. 

Time  of  payment. — Section  1678 — 16.  Where  the  instrument 
is  payable  at  a  fixed  period  after  date,  after  sight  or  after  the 
happening  of  a  specified  event,  the  time  of  payment  is  deter- 
mined by  excluding  the  day  from  which  the  time  is  to  begin  to 
run,  and  by  including  the  date  of  the  payment. 

At  a  bank. — Section  1678 — 17.  Where  the  instrument  is 
made  payable  at  a  bank  it  is  an  equivalent  to  an  order  to  the 
bank  to  pay  the  same  for  the  account  of  the  principal  debtor 
thereon. 

Payment  in  due  course. — Section  1678 — 18.  Payment  is  made 
in  due  course  when  it  is  made  at  or  after  the  maturity  of  the 
instrument  to  the  holder  thereof  in  good  faith  and  without  no- 
tice that  his  title  is  defective. 


NOTICE   OF   DISHONOR 

Notice,  how  given.— -Section  1678 — 19.  Except  as  herein  oth- 
erwise provided,  when  a  negotiable  instrument  has  been  dis- 
honored by  non-acceptance  or  non-payment,  notice  of  dishonor 
must  be  given  to  the  drawer  and  to  each  indorser,  and  any 
drawer  or  indorser  to  whom  such  notice  is  not  given  is  dis- 
charged. 

Who  may  give. — Section  1678 — 20.  The  notice  may  be  given 
by  or  on  behalf  of  the  holder,  or  by  or  on  behalf  of  any  party 


264       THE  LAW  OF  COMMERCIAL  PAPER 

to  the  instrument  who  might  be  compelled  to  pay  it  to  the 
holder,  and  who,  taking  it  up,  would  have  a  right  to  reimburse- 
ment from  the  party  to  whom  the  notice  is  given. 

By  agent. — Section  1678 — 21.  Notice  of  dishonor  may  be 
given  by  an  agent  either  in  his  own  name  or  in  the  name  of 
any  party  entitled  to  give  notice,  whether  that  party  be  his  prin- 
cipal or  not. 

Subsequent  holder. — Section  1678 — 22.  Where  notice  is  given 
by  or  on  behalf  of  the  holder,  it  enures  for  the  benefit  of  all 
subsequent  holders  and  all  prior  parties  who  have  a  right  of  re- 
course against  the  party  to  whom  it  is  given. 

Notice  on  behalf  of  entitled  party. — Section  1678 — 23.  Where 
notice  is  given  by  or  on  behalf  of  a  party  entitled  to  give  notice 
it  enures  for  the  benefit  of  the  holder  and  all  parties  subsequent 
to  the  party  to  whom  notice  is  given. 

In  hands  of  an  agent. — Section  1678 — 24.  Where  the  instru- 
ment has  been  dishonored  in  the  hands  of  an  agent,  he  may 
either  himself  give  notice  to  the  parties  liable  thereon,  or  he  may 
give  notice  to  his  principal.  If  he  give  notice  to  his  principal, 
he  must  do  so  within  the  same  time  as  if  he  were  the  holder,  and 
the  principal  upon  the  receipt  of  such  notice  has  himself  the 
same  time  for  giving  notice  as  if  the  agent  had  been  an  indepen- 
dent holder. 

Character  of  notice. — Section  1678 — 25.  The  notice  may  be 
in  writing  or  merely  oral  and  may  be  given  in  any  terms  which 
sufficiently  identify  the  instrument,  and  indicate  that  it  has  been 
dishonored  by  non-acceptance  or  non-payment.  It  may  in  all 
cases  be  given  by  delivering  it  personally  or  through  the  mails. 

Written  notice. — Section  1678 — 26.  A  written  notice  need 
not  be  signed  and  an  insufficient  written  notice  may  be  supple- 
mented and  validated  by  verbal  communication.  A  misdescrip- 


APPENDIX  265 

tion  of  the  instrument  does  not  vitiate  the  notice  unless  the 
party  to  whom  the  notice  is  given  is  in  fact  misled  thereby. 

To  whom  given. — Section  1678 — 27.  Notice  of  dishonor  may 
be  given  either  to  the  party  himself  or  to  his  agent  in  that 
behalf. 

Deceased  party. — Section  1678 — 28.  When  any  party  is  dead, 
and  his  death  is  known  to  the  party  giving  notice,  the  notice 
must  be  given  to  a  personal  representative,  if  there  be  one,  and 
if  with  reasonable  diligence  he  can  be  found.  If  there  be  no 
personal  representative,  notice  may  be  sent  to  the  last  residence 
or  last  place  of  business  of  the  deceased. 

Partners.— Section  1678 — 29.  Where  the  parties  to  be  noti- 
fied are  partners,  notice  to  any  one  partner  is  notice  to  the  firm 
even  though  there  has  been  a  dissolution. 

Joint  parties. — Section  1678 — 30.  Notice  to  joint  parties  who 
are  not  partners  must  be  given  to  each  of  them,  unless  one  of 
them  has  authority  to  receive  such  notice  for  the  others. 

Bankrupt. — Section  1678 — 31.  Where  a  party  has  been  ad- 
judged a  bankrupt  or  an  insolvent,  or  has  made  an  assignment 
for  the  benefit  of  creditors,  notice  may  be  given  either  to  the 
party  himself  or  to  his  trustees  or  assignee. 

When  given. — Section  1678 — 32.  Notice  may  be  given  as  soon 
as  the  instrument  is  dishonored;  and  unless  delay  is  excused  as 
hereinafter  provided,  must  be  given  within  the  times  fixed  by 
this  chapter. 

Where  parties  reside  in  same  place. — Section  1678 — 33.  Where 
the  person  giving  and  the  person  to  receive  notice  reside  in  the 
same  place,  notice  must  be  given  within  the  following  times : 

i.  If  given  at  the  place  of  business  of  the  person  to  receive 


266       THE  LAW  OF  COMMERCIAL  PAPER 

notice,  it  must  be  given  before  the  close  of  business  hours  on 
the  day  following. 

2.  If  given  at  his  residence,  it  must  be  given  before  the  usual 
hours  of  rest  on  the  day  following. 

3.  If  sent  by  mail,  it  must  be  deposited  in  the  postoffice  in 
time  to  reach  him  in  usual  course  on  the  day  following. 

Where  parties  reside  in  different  places.— Section  1678—34. 
Where  the  person  giving  and  the  person  to  receive  notice  reside 
in  different  places,  the  notice  must  be  given  within  the  follow- 
ing times: 

1.  If  sent  by  mail,  it  must  be  deposited  in  the  postoffice  in 
time  to  go  by  mail  the  day  following  the  day  of  dishonor,  or  if 
there  be  no  mail  at  a  convenient  hour  on  that  day,  by  the  next 
mail  thereafter. 

2.  If  given  otherwise  than  through  the  postoffice,  then  within 
the  time  that  notice  would  have  been  received  in  due  course  of 
mail,  if  it  had  been  deposited  in  the  postoffice  within  the  time 
specified  in  the  last  sub-division. 

By  mail. — Section  1678 — 35.  Where  notice  of  dishonor  is 
duly  addressed  and  deposited  in  the  postoffice,  the  sender  is 
deemed  to  have  given  due  notice,  notwithstanding  any  mis- 
carriage in  the  mails. 

When  mailed. — Section  1678 — 36.  Notice  is  deemed  to  have 
been  deposited  in  the  postoffice  when  deposited  in  any  branch 
postoffice  or  in  any  letter  box  under  the  control  of  the  postoffice 
department. 

Notice  to  antecedent  parties. — Section  1678 — 37.  Where  a 
party  receives  notice  of  dishonor,  he  has,  after  the  receipt  of 
such  notice,  the  same  time  for  giving  notice  to  antecedent 
parties  that  the  holder  has  after  the  dishonor. 

Where  to  be  sent. — Section  1678 — 38.  Where  a  party  has 
added  an  address  to  his  signature,  notice  of  dishonor  must  be 


APPENDIX  267 

sent  to  that  address;  but  if  he  has  not  given  such  address,  then 
the  notice  must  be  sent  as  follows: 

1.  Either  to  the  postoffice  nearest  to  his  place  of  residence, 
or  to  the  postoffice  where  he  is  accustomed  to  receive  his  letters ; 
or 

2.  If  he  live  in  one  place,  and  have  his  place  of  business  in 
another,  notice  may  be  sent  to  either  place;  or 

3.  If  he  is  sojourning  in  another  place,  notice  may  be  sent  to 
the  place  where  he  is  sojourning. 

But  where  the  notice  is  actually  received  by  the  party  within 
the  time  specified  in  this  act,  it  will  be  sufficient,  though  not 
sent  in  accordance  with  the  requirements  of  this  section. 

Waiver  of  notice. — Section  1678 — 39.  Notice  of  dishonor  may 
be  waived,  either  before  the  time  of  giving  notice  has  arrived, 
or  after  the  omission  to  give  due  notice,  and  the  waiver  may  be 
express  or  implied. 

Waiver  in  instrument. — Section  1678 — 40.  Where  the  waiver 
is  embodied  in  the  instrument  itself,  it  is  binding  upon  all  par- 
ties ;  but  where  it  is  written  above  the  signature  of  an  indorser, 
it  binds  him  only. 

Waiver  of  protest. — Section  1678 — 41.  A  waiver  of  protest, 
whether  in  the  case  of  a  foreign  bill  of  exchange  or  other  ne- 
gotiable instrument,  is  deemed  to  be  a  waiver  not  only  of  a 
formal  protest,  but  also  of  presentment  and  notice  of  dishonor. 

Notice,  when  dispensed  with. — Section  1678 — 42.  Notice  of 
dishonor  is  dispensed  with  when,  after  the  exercise  of  reason- 
able diligence,  it  cannot  be  given  to  or  does  not  reach  the  par- 
ties sought  to  be  charged. 

Delay,  when  excused.— Section  1678—43.  Delay  in  giving  no- 
tice of  dishonor  is  excused  when  the  delay  is  caused  by  cir- 
cumstances beyond  the  control  of  the  holder  and  not  imputable 
to  his  default,  misconduct  or  negligence.  When  the  cause  of 


268       THE  LAW  OF  COMMERCIAL  PAPER 

delay  ceases  to  operate,  notice  must  be  given  with  reasonable 
diligence. 

Notice  to  drawer,  when  not  required. — Section  1678 — 44.  No- 
tice of  dishonor  is  not  required  to  be  given  to  the  drawer  in 
either  of  the  following  cases: 

1.  Where  the  drawer  and  drawee  are  the  same  person; 

2.  Where  the  drawee  is  a  fictitious  person  or  a  person  not 
having  capacity  to  contract. 

3.  Where  the  drawer  is  the  person  to  whom  the  instrument 
is  presented  for  payment ; 

4.  Where  the  drawer  has  no  right  to  expect  or  require  that 
the  drawee  or  acceptor  will  honor  the  instrument ; 

5.  Where  the  drawer  has  countermanded  payment. 

Notice  to  indorser,  when  not  required. — Section  1678 — 45.  No- 
tice of  dishonor  is  not  required  to  be  given  to  an  indorser  in 
either  of  the  following  cases: — 

1.  Where  the  drawee  is  a  fictitious  person  or  a  person  not 
having  capacity  to  contract,  and  the  indorser  was  aware  of  the 
fact  at  the  time  he  indorsed  the  instrument ; 

2.  Where  the  indorser  is  the  person  to  whom  the  instrument 
is  presented  for  payment; 

3.  Where  the  instrument  was  made  or  accepted  for  his  ac- 
commodation. 

Of  subsequent  dishonor.— Section  1678—46.  Where  due  no- 
tice of  dishonor  by  non-acceptance  has  been  given  notice  of  a 
subsequent  dishonor  by  non-payment  is  not  necessary,  unless  in 
the  meantime  the  instrument  has  been  accepted. 

Omission  to  give  notice. — Section  1678 — 47.  An  omission  to 
give  notice  of  dishonor  by  non-acceptance  does  not  prejudice  the 
rights  of  a  holder  in  due  course  subsequent  to  the  omission,  but 
this  shall  not  be  construed  to  revive  any  liability  discharge  by 
such  omission. 

Protest. — Section   1678 — 48.     Where  any  negotiable  instru- 


APPENDIX  269 

ment  has  been  dishonored  it  may  be  protested  for  non-accept- 
ance or  non-payment,  as  the  case  may  be ;  but  protest  is  not  re- 
quired except  in  the  case  of  foreign  bills  of  exchange. 


DISCHARGE  OF  NEGOTIABLE  INSTRUMENTS 

When  discharged. — Section  1679.  A  negotiable  instrument  is 
discharged : 

1.  By  the  payment  in  due  course  by  or  on  behalf  of  the  prin- 
cipal debtor; 

2.  By  payment  in  due  course  by  the  party  accommodated, 
where  the  instrument  is  made  or  accepted  for  accommodation; 

3.  By  the  intentional  cancellation  thereof  by  the  holder; 

4.  By  any  other  act  which  will  discharge  a  simple  contract 
for  the  payment  of  money; 

5.  Where  the  principal  debtor  becomes  the  holder  of  the  in- 
strument at  or  after  maturity  in  his  own  right. 

Discharge  from  secondary  liability. — Section  1679 — i.  A  per- 
son secondarily  liable  on  the  instrument  is  discharged: 

1.  By  any  act  which  discharges  the  instrument; 

2.  By  the  intentional  cancellation  of  his  signature  by  the 
holder ; 

3.  By  the  discharge  of  a  prior  party; 

4.  By  a  valid  tender  of  payment  made  by  a  prior  party; 

4a.  By  giving  up  or  applying  to  other  purposes  collateral 
security  applicable  to  the  debt,  or,  there  being  in  the  holder's 
hands  or  within  his  control  the  means  of  complete  or  partial 
satisfaction,  the  same  are  applied  to  other  purposes. 

5.  By  a  release  of  the  principal  debtor,  unless  the  holder's 
right  of  recourse  against  the  party  secondarily  liable  is  ex- 
pressly reserved; 

6.  By  an  agreement  binding  upon  the  holder  to  extend  the 
time  of  payment,  or  to  postpone  the  holder's  right  to  enforce 
the  instrument  unless  made  with  the  assent,  prior  or  subsequent, 
of  the  party  secondarily  liable,  unless  the  right  of  recourse 
against  such  party  is  expressly  reserved,  or  unless  he  is  fully 
indemnified. 


270       THE  LAW  OF  COMMERCIAL  PAPER 

When  paid  by  secondary  party.— Section  1679—2.  Where  the 
instrument  is  paid  by  a  party  secondarily  liable  thereon,  it  is 
not  discharged;  but  the  party  so  paying  it  is  remitted  to  his 
former  rights  as  regards  all  prior  parties,  and  he  may  strike  out 
his  own  and  all  subsequent  indorsements  and  again  negotiate 
the  instrument,  except: 

1.  Where  it  is  payable  to  the  order  of  a  third  person,  and  has 
been  paid  by  the  drawer;  and 

2.  Where  it  was  made  or  accepted  for  accommodation,  and 
has  been  paid  by  the  party  accommodated. 

Renunciation  of  rights. — Section  1679 — 3.  The  holder  may 
expressly  renounce  his  rights  against  any  party  to  the  instru- 
ment, before,  at  or  after  its  maturity.  An  absolute  and  uncon- 
ditional renunciation  of  his  rights  against  the  principal  debtor 
made  at  or  after  the  maturity  of  the  instrument  discharges  the 
instrument.  But  a  renunciation  does  not  affect  the  rights  of  a 
holder  in  due  course  without  notice.  A  renunciation  must  be 
in  writing,  unless  the  instrument  is  delivered  up  to  the  person 
primarily  liable  thereon. 

Cancellation  by  mistake. — Section  1679 — 4.  A  cancellation 
made  unintentionally,  or  under  a  mistake,  or  without  the  author- 
ity of  the  holder,  is  inoperative;  but  where  an  instrument  or 
any  signature  thereon  appears  to  have  been  cancelled  the  bur- 
den of  proof  lies  on  the  party  who  alleges  that  the  cancellation 
was  made  unintentionally,  or  under  a  mistake  or  without  au- 
thority. 

Altering  of  instrument. — Section  1679 — 5.  Where  a  negoti- 
able instrument  is  materially  altered  without  the  assent  of  all 
parties  liable  thereon,  it  is  avoided,  except  as  against  a  party 
who  has  himself  made,  authorized  or  assented,  orally  or  in  writ- 
ing, to  the  alteration  and  subsequent  indorsers.  But  when  an 
instrument  has  been  materially  altered  and  is  in  the  hands  of  a 
holder  in  due  course,  not  a  party  to  the  alteration,  he  may  en- 
force payment  thereof  according  to  its  original  tenor. 


APPENDIX  271 

Material  alteration.— Section  1679 — 6.  Any  alteration  which 
changes : 

1.  The  date; 

2.  The  sum  payable,  either  for  principal  or  interest; 

3.  The  time  or  place  of  payment; 

4.  The  number  or  the  relation  of  the  parties ; 

5.  The  medium  or  currency  in  which  payment  is  to  be  made ; 
Or  which  adds  a  place  of  payment  where  no  place  of  payment 

is  specified,  or  any  other  change  or  addition  which  alters  the 
effect  of  the  instrument  in  any  respect,  is  a  material  alteration. 

BILLS  OF  EXCHANGE 

FORM   AND   INTERPRETATION 

What  is  bill  of  exchange.— Section  1680.  A  bill  of  exchange 
is  an  unconditional  order  in  writing  addressed  by  one  person  to 
another,  signed  by  the  person  giving  it,  requiring  the  person  to 
whom  it  is  addressed  to  pay  on  demand  or  at  a  fixed  or  de- 
terminable  future  time  a  sum  certain  in  money  to  order  or 
bearer. 

Not  an  assignment  of  funds.— Section  i68oa.  A  bill  of  itself 
does  not  operate  as  an  assignment  of  the  funds  in  the  hands  of 
the  drawee  available  for  the  payment  thereof  and  the  drawee  is 
not  liable  on  the  bill  unless  and  until  he  accepts  the  same. 

Address  of  bill. — Section  i68ob.  A  bill  may  be  addressed  to 
two  or  more  drawees  jointly,  whether  they  are  partners  or  not; 
but  not  to  two  or  more  drawees  in  the  alternative. 

Inland  and  foreign  bill.— Section  i68oc.  An  inland  bill  of  ex- 
change is  a  bill  which  is,  or  on  its  face  purports  to  be,  both 
drawn  and  payable  within  this  state.  Any  other  bill  is  a  foreign 
bill.  Unless  the  contrary  appears  on  the  face  of  the  bill,  the 
holder  may  treat  it  as  an  inland  bill. 

Where  drawer  and  drawee  are  same  person.— Section    i68od. 


272       THE  LAW  OF  COMMERCIAL  PAPER 

Where  in  a  bill  drawer  and  drawee  are  the  same  person,  or 
where  the  drawee  is  a  fictitious  person,  not  having  capacity,  to 
contract,  the  holder  may  treat  the  instrument,  at  his  option, 
either  as  a  bill  of  exchange  or  a  promissory  note. 

Referee  in  case  of  need.— Section  i68oe.  The  drawer  of  a  bill 
and  any  indorser  may  insert  thereon  the  name  of  the  person  to 
whom  the  holder  may  resort  in  case  of  need,  that  is  to  say,  in 
case  the  bill  is  dishonored  by  non-acceptance  or  non-payment. 
Such  person  is  called  the  referee  in  case  of  need.  It  is  in  the 
option  of  the  holder  to  resort  to  the  referee  in  case  of  need  or 
not  as  he  may  see  fit. 

ACCEPTANCE 

Acceptance  of  bill.— Section  i68of.  The  acceptance  of  a  bill 
is  the  signification  by  the  drawee  of  his  assent  to  the  order  of 
the  drawer.  The  acceptance  must  be  in  writing  and  signed  by 
the  drawer.  It  must  not  express  that  the  drawee  will  perform 
his  promise  by  any  other  means  than  the  payment  of  money. 

Acceptance  in  writing. — Section  i68og.  The  holder  of  a  bill 
presenting  the  same  for  acceptance  may  require  that  the  ac- 
ceptance be  written  on  the  bill  and  if  such  request  is  refused, 
may  treat  the  bill  as  dishonored. 

Written  acceptance  on  paper  other  than  bill. — Section  i68oh. 
Where  an  acceptance  is  written  on  a  paper  other  than  the  bill 
itself,  it  does  not  bind  the  acceptor  except  in  favor  of  a  person 
to  whom  it  is  shown  and  who,  on  the  faith  thereof,  receives  the 
bill  for  value. 

Promise  in  writing. — Section  i68oi.  An  unconditional  prom- 
ise in  writing  to  accept  a  bill  before  it  is  drawn  is  deemed  an 
actual  acceptance  in  favor  of  every  person  who,  upon  the  faith 
thereof,  receives  the  bill  for  value. 

Time  allowed  for  acceptance. — Section  i68oj.    The  drawee  is 


APPENDIX  273 

allowed  twenty- four  hours  after  presentment  in  which  to  decide 
whether  or  not  he  will  accept  the  bill;  but  the  acceptance  if 
given  dates  as  of  the  day  of  presentation. 

Refusal  or  failure  to  return. — Section  i68ok.  Where  a  drawee 
to  whom  a  bill  is  delivered  for  acceptance  destroys  the  same,  or 
refuses  within  twenty-four  hours  after  such  delivery,  or  within 
such  other  period  as  the  holder  may  allow,  to  return  the  bill  ac- 
cepted or  non-accepted  to  the  holder,  he  will  be  deemed  to  have 
accepted  the  same.  Mere  retention  of  the  bill  is  not  acceptance. 

Acceptance  before  signing. — Section  1680!.  A  bill  may  be  ac- 
cepted before  it  has  been  signed  by  the  drawer,  or  while  other- 
wise incomplete,  or  when  it  is  overdue,  or  after  it  has  been  dis- 
honored by  previous  refusal  to  accept,  or  by  non-payment.  But 
when  a  bill  payable  after  sight  is  dishonored  by  non-acceptance 
and  the  drawee  subsequently  accepts  it,  the  holder,  in  the  ab- 
sence of  any  different  agreement,  is  entitled  to  have  the  bill  ac- 
cepted as  of  the  date  of  the  first  presentment. 

General  or  qualified  acceptance.— Section  i68om.  An  accept- 
ance is  either  general  or  qualified.  A  general  acceptance  as- 
sents without  qualification  to  the  order  of  the  drawer.  A  quali- 
fied acceptance  in  express  terms  varies  the  effect  of  the  bill  as 
drawn. 

General  acceptance.— Section  i68on.  An  acceptance  to  pay  at 
a  particular  place  is  a  general  acceptance  unless  it  expressly 
states  that  the  bill  is  to  be  paid  there  only  and  not  elsewhere. 

Qualified  acceptance.— Section  1680  o.  An  acceptance  is  qual- 
ified, which  is: 

1.  Conditional,  that  is  to  say,  which  makes  payment  by  the  ac- 
ceptor  dependent   on   the    fulfillment   of   a   condition   therein 
stated ; 

2.  Partial,  that  is  to  say,  an  acceptance  to  pay  part  only  of 
the  amount  for  which  the  bill  is  drawn; 


274       THE  LAW  OF  COMMERCIAL  PAPER 

3.  Local,  that  is  to  say,  acceptance  to  pay  only  at  a  particular 
place ; 

4.  Qualified  as  to  time. 

5.  The  acceptance  of  some  one  or  more  of  the  drawees,  but 
not  of  all. 

Refusal  of  qualified  acceptance.— Section  i68op.  The  holder 
may  refuse  to  take  a  qualified  acceptance,  and  if  he  does  not  ob- 
tain an  unqualified  acceptance,  he  may  treat  the  bill  as  dis- 
honored by  non-acceptance.  Where  a  qualified  acceptance  is 
taken,  the  drawer  and  indorsers  are  discharged  from  liability 
on  the  bill,  unless  they  have  expressly  or  impliedly  authorized 
the  holder  to  take  a  qualified  acceptance  or  subsequently  assent 
thereto.  When  the  drawer  or  indorser  receive  notice  of  a  quali- 
fied acceptance,  he  must  within  a  reasonable  time  express  his 
dissent  to  the  holder,  or  he  will  be  deemed  to  have  assented 
thereto. 


PRESENTMENT   FOR   ACCEPTANCE 

Where  made.— Section  1681.  Presentment  for  acceptance  must 
be  made: 

1.  Where  the  bill  is  payable  after  sight,  or  in  any  other  case 
where  presentment  for  acceptance  is  necessary  in  order  to  fix 
the  maturity  of  the  instrument;  or 

2.  Where  the  bill  expressly  stipulates  that  it  shall  be  pre- 
sented for  acceptance,  or 

3.  Where  the  bill  is  drawn  payable  elsewhere  than  at  the  resi- 
dence or  place  of  business  of  the  drawee. 

In  no  other  case  is  presentment  for  acceptance  necessary  in 
order  to  render  any  party  to  the  bill  liable. 

Failure  to  present  or  negotiate.— Section  1681 — i.  Except  as 
herein  otherwise  provided,  the  holder  of  a  bill  which  is  re- 
quired by  the  next  preceding  section  to  be  presented  for  ac- 
ceptance must  either  present  it  for  acceptance  or  negotiate  it 
within  a  reasonable  time.  If  he  fail  to  do  so,  the  drawer  and 
all  indorsers  are  discharged. 


APPENDIX  275 

When  and  where  to  be  made. — Section  1681 — 2.  Presentment 
for  acceptance  must  be  made  by  or  on  behalf  of  the  holder  at 
a  reasonable  hour,  on  a  business  day  and  before  the  bill  is  over- 
due, to  the  drawer  or  some  person  authorized  to  accept  or  re- 
fuse acceptance  on  his  behalf;  and 

1.  Where  a  bill  is  addressed  to  two  or  more  drawees  who  are 
not  partners,  presentment  must  be  made  to  them  all,  unless  one 
has  authority  to  accept  or  refuse  acceptance  for  all,  in  which 
case  presentment  may  be  made  to  him  only; 

2.  Where  the  drawee  is  dead,  presentment  may  be  made  to  his 
personal  representative ; 

3.  Where  the  drawee  has  been  adjudged  a  bankrupt  or  an  in- 
solvent or  has  made  an  assignment  for  the  benefit  of  creditors, 
presentment  may  be  made  to  him  or  to  his  trustee  or  assignee. 

Presentment  of  bill.— Section  1681 — 3.  A  bill  may  be  pre- 
sented for  acceptance  on  any  day  on  which  negotiable  instru- 
ments may  be  presented  for  payment  under  the  provisions  of 
sections  1678 — 2  and  1678 — 15. 

Delay,  when  excusable. — Section  1681 — 4.  Where  the  holder 
of  a  bill  drawn  payable  elsewhere  than  at  the  place  of  business 
or  the  residence  of  the  drawee  has  not  time  with  the  exercise 
of  reasonable  diligence  to  present  the  bill  for  acceptance  before 
presenting  it  for  payment  on  the  day  that  it  falls  due,  the  de- 
lay caused  by  presenting  the  bill  for  acceptance  before  present- 
ing it  for  payment  is  excused  and  does  not  discharge  the 
drawers  and  indorsers. 

Presentment,  when  excused.— Section  1681—5.  Presentment 
for  acceptance  is  excused  and  a  bill  may  be  treated  as  dis- 
honored by  non-acceptance,  in  either  of  the  following  cases: — 

1.  Where  the  drawee  is  dead,  or  has  absconded,  or  is  a  ficti- 
tious person  or  a  person  not  having  capacity  to  contract  by  bill. 

2.  Where,  after  the  exercise  of  reasonable  diligence,  present- 
ment cannot  be  made. 

3.  Where,  although  presentment  has  been  irregular,  accept- 
ance has  been  refused  on  some  other  ground. 


276       THE  LAW  OF  COMMERCIAL  PAPER 

When  dishonored.— Section  1681— 6.    A  bill  is  dishonored  by 
non-acceptance, — 

1.  When  it  is  duly  presented  for  acceptance  and  such  an  ac- 
ceptance as  is  prescribed  by  this  act  is  refused  or  cannot  be  ob- 
tained; or 

2.  When  presentment  for  acceptance  is  excused  and  the  bill 
is  not  accepted. 


Recourse,  when  lost,— Section  1681—7.  When  a  bill  is  duly 
presented  for  acceptance  and  is  not  accepted  within  the  pre- 
scribed time,  the  person  presenting  it  must  treat  the  bill  as  dis- 
honored by  non-acceptance  or  he  loses  the  right  of  recourse 
against  the  drawer  and  indorsers. 

When  recourse  accrues. — Section  1681 — 8.  When  a  bill  is 
dishonored  by  non-acceptance,  an  immediate  right  of  recourse 
against  the  drawers  and  indorsers  accrues  to  the  holder  and  no 
presentment  for  payment  is  necessary. 

PROTEST 

As  to  foreign  bilL — Section  1681 — 9.  Where  a  foreign  bill  ap- 
pearing on  its  face  to  be  such  is  dishonored  by  non-acceptance, 
it  must  be  duly  protested  for  non-acceptance,  and  where  such  a 
bill  which  has  not  previously  been  dishonored  by  non-acceptance 
is  dishonored  by  non-payment,  it  must  be  duly  protested  for 
non-payment.  If  it  is  not  so  protested,  the  drawer  and  indorsers 
are  discharged.  Where  a  bill  does  not  appear  on  its  face  to  be 
a  foreign  bill,  protest  thereof  in  case  of  dishonor  is  unneces- 
sary. 

Every  notary  public,  when  any  bill  of  exchange  or  promissory 
note  shall  be  by  him  protested  for  non-acceptance  or  non-pay- 
ment, shall  give  notice  thereof  in  writing  to  the  drawer,  maker 
and  each  indorser  of  such  bill  of  exchange  or  promissory  note ; 
he  shall  also  thereupon  make  a  certificate  under  his  hand  and  offi- 
cial seal,  setting  forth  the  presentment,  demand,  refusal  and 
protest  thereof  for  non-acceptance  or  non-payment,  the  con- 


APPENDIX  277 

tents  of  the  notice  given,  and  the  time  and  manner  of  service 
thereof,  specifying  the  postoffice  and  reputed  place  of  residence 
of  each  person  notified  by  mail;  he  shall  also  thereupon  make 
and  keep  a  record  of  such  certificate  and  of  the  description  of 
the  instrument  protested;  and  such  certificate  or  such  record, 
or  a  certified  copy  thereof,  shall  be  presumptive  evidence  of  the 
facts  therein  stated.  The  want  of  such  certificate  or  record, 
or  both,  shall  not  invalidate  any  such  protest  or  notice,  but  the 
same  may  be  proved  by  any  other  competent  evidence. 

Specifications  of  protest.— Section  1681— 10.  The  protest  must 
be  annexed  to  the  bill,  or  must  contain  a  copy  thereof,  and  must 
be  under  the  hand  and  seal  of  the  notary  makmg  it,  and  must 
specify : 

1.  The  time  and  place  of  presentment; 

2.  The  fact  that  presentment  was  made  and  the  manner  there- 
of; 

3.  The  cause  or  reason  for  protesting  the  bill; 

4.  The  demand  made  and  the  answer  given,  if  any,  or  the 
fact  that  the  drawee  or  acceptor  could  not  be  found. 

How  made. — Section  1681 — n.    Protest  may  be  made  by, — 

1.  A  notary  public;  or 

2.  By  any  respectable  resident  of  the  place  where  the  bill  is 
dishonored,  in  the  presence  of  two  or  more  credible  witnesses. 

When  made. — Section  1681 — 12.  When  a  bill  is  protested, 
such  protest  must  be  made  on  the  day  of  its  dishonor,  unless  de- 
lay is  excused  as  herein  provided.  When  a  bill  has  been  duly 
noted,  the  protest  may  be  subsequently  extended  as  of  the  date 
of  the  noting. 

Where  made. — Section  1681 — 13.  A  bill  must  be  protested  at 
the  place  where  it  is  dishonored,  except  that  when  a  bill  drawn 
payable  at  the  place  of  business,  or  residence  of  some  person 
other  than  the  drawee,  has  been  dishonored  by  non-acceptance, 
it  must  be  protested  for  non-payment  at  the  place  where  it  is 


278       THE  LAW  OF  COMMERCIAL  PAPER 

expressed  to  be  payable,  and  no  further  presentment  for  pay- 
ment to,  or  demand  on,  the  drawee  is  necessary. 

For  non-payment.— Section  1681—14.  A  bill  which  has  been 
protested  for  non-acceptance  may  be  subsequently  protested  for 
non-payment. 

When  acceptor  a  bankrupt,— Section  1681—15.  Where  the  ac- 
ceptor has  been  adjudged  a  bankrupt  or  an  insolvent  or  has 
made  an  assignment  for  the  benefit  of  creditors,  before  the  bill 
matures,  the  holder  may  cause  the  bill  to  be  protested  for  bet- 
ter security  against  the  drawer  and  indorsers. 

When  dispensed  with.— Section  1681— 16.  Protest  is  dispensed 
with  by  any  circumstances  which  would  dispense  with  notice  of 
dishonor.  Delay  in  noting  or  protesting  is  excused  when  delay 
is  caused  by  circumstances  beyond  the  control  of  the  holder 
and  not  imputable  to  his  default,  misconduct  or  negligence. 
When  the  cause  of  delay  ceases  to  operate,  the  bill  must  be 
noted  or  protested  with  reasonable  diligence. 

Lost  bill. — Section  1681 — 17.  Where  a  bill  is  lost  or  destroyed 
or  is  wrongly  detained  from  the  person  entitled  to  hold  it,  pro- 
test may  be  made  on  a  copy  or  written  particulars  thereof. 

ACCEPTANCE   FOR    HONOR 

Acceptance  snpra  protest,  for  honor. — Section  1681 — 18. 
Where  a  bill  of  exchange  has  been  protested  for  dishonor  by 
non-acceptance  or  protested  for  better  security  and  is  not  over- 
due, any  person  not  being  a  party  already  liable  thereon  may, 
with  the  consent  of  the  holder,  intervene  and  accept  the  bill 
supra  protest  for  the  honor  of  any  party  liable  thereon  or  for 
the  honor  of  the  person  for  whose  account  the  bill  is  drawn. 
The  acceptance  for  honor  may  be  for  part  only  of  the  sum  for 
which  the  bill  is  drawn;  and  where  there  has  been  an  accept- 
ance for  honor  for  one  party,  there  may  be  a  further  accept- 
ance by  a  different  person  for  the  honor  of  another  party. 


APPENDIX  279 

To  be  in  writing. — Section  1681 — 19.  An  acceptance  for  honor 
supra  protest  must  be  in  writing  and  indicate  that  it  is  an  ac- 
ceptance for  honor,  and  must  be  signed  by  the  acceptor  for  honor. 

For  drawer,  when. — Section  1681 — 20.  Where  an  acceptance 
for  honor  does  not  expressly  state  for  whose  honor  it  is  made, 
it  is  deemed  to  be  an  acceptance  for  the  honor  of  the  drawer. 

Liability  of  acceptor. — Section  1681 — 21.  The  acceptor  for 
honor  is  liable  to  the  holder  and  to  all  parties  to  the  bill  subse- 
quent to  the  party  for  whose  honor  he  has  accepted. 

Engagement  of  acceptor  for  honor. — Section  1681 — 22.  The 
acceptor  for  honor  by  such  acceptance  engages  that  he  will  on 
due  presentment  pay  the  bill  according  to  the  terms  of  his  ac- 
ceptance, provided  it  shall  not  have  been  paid  by  the  drawee, 
and  provided  also,  that  it  shall  have  been  duly  presented  for 
payment  and  protested  for  non-payment  and  notice  of  dishonor 
given  to  him. 

Bill  payable  after  sight. — Section  1681 — 23.  Where  a  bill  pay- 
able after  sight  is  accepted  for  honor,  its  maturity  is  calcu- 
lated from  the  date  of  the  noting  for  non-acceptance  and  not 
from  the  date  of  the  acceptance  for  honor. 

Acceptance  of  dishonored  bill. — Section  1681 — 24.  Where  a 
dishonored  bill  has  been  accepted  for  honor  supra  protest  or 
contains  a  reference  in  case  of  need,  it  must  be  protested  for 
non-payment  before  it  is  presented  for  payment  to  the  acceptor 
for  honor  or  referee  in  case  of  need. 

Presentment  to  acceptor,  how  made. — Section  1681 — 25.  Pre- 
sentment for  payment  to  the  acceptor  for  honor  must  be  made 
as  follows: — 

i.  If  it  is  to  be  presented  in  the  place  where  the  protest  for 
non-payment  was  made,  it  must  be  presented  not  later  than  the 
day  following  its  maturity. 


280       THE  LAW  OF  COMMERCIAL  PAPER 

2.  If  it  is  to  be  presented  in  some  other  place,  than  the  place 
where  it  was  protested,  then  it  must  be  forwarded  within  the 
time  specified  in  section  1678 — 34. 

Section  1681 — 26.  The  provisions  of  section  1678 — n  apply 
\vhere  there  is  delay  in  making  presentment  to  the  acceptor  for 
honor  or  referee  in  case  of  need. 

Section  1681 — 27.  When  the  bill  is  dishonored  by  the  ac- 
ceptor for  honor  it  must  be  protested  for  non-payment  by  him. 

PAYMENT  FOR   HONOR 

Payment  supra  protest.-— Section  1681 — 2%.  Where  a  bill  has 
been  protested  for  non-payment,  any  person  may  intervene  and 
pay  it  supra  protest  for  the  honor  of  any  person  liable  thereon 
for  the  honor  of  the  person  for  whose  account  it  was  drawn. 

Notarial  act  of  honor,  when  necessary.-— Section  1681 — 29.  The 
payment  for  honor  supra  protest  in  order  to  operate  as  such 
and  not  as  a(  mere  voluntary  payment  must  be  attested  by  a 
notarial  act  of  honor  which  may  be  appended  to  the  protest  or 
form  an  extension  to  it. 

Foundation  of  notarial  act.— Section  1681—30.  The  notarial 
act  of  honor  must  be  founded  on  a  declaration  made  by  the 
payer  for  honor  or  by  his  agent  in  that  behalf  declaring  his  in- 
tention to  pay  the  bill  for  honor  and  for  whose  honor  he 
pays. 

Different  parties.— Section  1681—31.  Where  two  or  more  per- 
sons offer  to  pay  a  bill  for  the  honor  of  different  parties,  the 
person  whose  payment  will  discharge  most  parties  to  the  bill  is 
to  be  given  the  preference. 

Bill  paid  for  honor.— Section  1681—32.  Where  a  bill  has  been 
paid  for  honor,  all  parties  subsequent  to  the  party  for  whose 
honor  it  is  paid  are  discharged,  but  the  payer  for  honor  is  sub- 
rogated  for,  and  succeeds  to,  both  the  rights  and  duties  of  the 


APPENDIX  281 

holder  as  regards  the  party  for  whose  honor  he  pays  and  all 
parties  liable  to  the  latter. 

Holder's  refusal,  supra  protest.— Section  1681 — 33.  Where  the 
holder  of  a  bill  refuses  to  receive  payment  supra  protest,  he 
loses  his  right  of  recourse  against  any  party  who  would  have 
been  discharged  by  such  payment. 

Payer  for  honor. — Section  1681 — 34.  The  payer  for  honor  on 
paying  to  the  holder  the  amount  of  the  bill  and  the  notarial  ex- 
penses incident  to  its  dishonor,  is  entitled  to  receive  both  the  bill 
itself  and  the  protest. 

BILLS   IN    A   SET 

When  one  bill — Section  1681 — 35.  Where  a  bill  is  drawn  in 
a  set,  each  part  of  a  set  being  numbered  and  containing  a  refer- 
ence to  the  other  parts,  the  whole  of  the  parts  constitutes  one 
bill. 

Where  parts  are  negotiated.— Section  1681—36.  Where  two 
or  more  parts  of  a  set  are  negotiated  to  different  holders  in 
due  course,  the  holder  whose  title  first  accrues  is  as  between 
such  holders  the  true  owner  of  the  bill.  But  nothing  in  this 
section  affects  the  rights  of  a  person  who  in  due  course  accepts 
or  pays  the  part  first  presented  to  him. 

Indorsement  to  different  parties. — Section  1681 — 37.  Where 
the  holder  of  a  set  indorses  two  or  more  parts  to  different  per- 
sons he  is  liable  on  every  such  part,  and  every  indorser  subse- 
quent to  him  is  liable  on  the  part  he  has  himself  indorsed,  as  if 
such  parts  were  separate  bills. 

Acceptance  on  any  part.— Section  1681—38.  The  acceptance 
may  be  written  on  any  part  and  it  must  be  written  on  one  part 
only.  If  the  drawee  accepts  more  than  one  part,  and  such  ac- 
cepted parts  are  negotiated  to  different  holders  in  due  course, 
he  is  liable  on  every  such  part  as  if  it  were  a  separate  bill. 


282       THE  LAW  OF  COMMERCIAL  PAPER 

Liability  of  acceptor  in  paying  part.— Section  1681—39.  When 
the  acceptor  of  a  bill  drawn  in  a  set  pays  it  without  requiring 
the  part  bearing  his  acceptance  to  be  delivered  up  to  him,  and 
that  part  at  maturity  is  outstanding  in  the  hands  of  a  holder  in 
due  course,  he  is  liable  to  the  holder  thereon. 

When  whole  bill  is  discharged.— Section  1681—40.  Except  as 
herein  otherwise  provided  where  any  one  part  of  a  bill  drawn 
in  a  set  is  discharged  by  payment  or  otherwise  the  whole  bill 
is  discharged. 

DAMAGES  ON  BILLS 

Rate  of  damages  within  state.— Section  1682.  Whenever  any 
bill  of  exchange  drawn  or  indorsed  within  this  state  and  pay- 
able without  the  limits  of  the  United  States  shall  be  duly  pro- 
tested for  non-acceptance  or  non-payment  the  party  liable  for 
the  contents  of  such  bill  shall,  on  due  notice  and  demand  there- 
of, pay  the  same  at  the  current  rate  of  exchange  at  the  time  of 
the  demand  and  damages  at  the  rate  of  five  per  cent,  on  the 
contents  thereof,  together  with  interest  on  the  said  contents, 
to  be  computed  from  the  date  of  the  protest;  and  said  amount 
of  contents,  damages  and  interest  shall  be  in  full  of  all  damages, 
charges  and  expenses. 

Rate  of  damages  without  state. — Section  1683.  If  any  bill  of 
exchange  drawn  upon  any  person  or  corporation  out  of  this 
state,  but  within  some  state  or  territory  of  the  United  States, 
for  the  payment  of  money  shall  be  duly  presented  for  accept- 
ance or  payment  and  protested  for  non-acceptance  or  non-pay- 
ment the  drawer  or  indorser  thereof,  due  notice  being  given  of 
such  non-acceptance  or  non-payment,  shall  pay  such  bill  with 
legal  interest  according  to  its  tenor  and  five  per  cent,  damages, 
together  with  costs  and  charges  of  protest. 

PROMISSORY  NOTES   AND  CHECKS 

Negotiable  notes  defined. — Section  1684.  A  negotiable  prom- 
issory note  within  the  meaning  of  this  act  is  an  unconditional 


APPENDIX  283 

promise  in  writing  made  by  one  person  to  another  signed  by 
the  maker  engaging  to  pay  on  demand,  or  at  a  fixed  or  deter- 
minable  future  time  a  sum  certain  in  money  to  order  or  to 
bearer.  Where  a  note  is  drawn  to  the  maker's  own  order,  it  is 
not  complete  until  indorsed  by  him. 

Check. — Section  1684 — I.  A  check  is  a  bill  of  exchange 
drawn  on  a  bank,  payable  on  demand.  'Except  as  herein  other- 
wise provided  the  provisions  of  this  act  applicable  to  a  bill  of 
exchange  payable  on  demand  apply  to  a  check. 

Presentation  of  check.— Section  1684—2.  A  check  must  be 
presented  for  payment  within  a  reasonable  time  after  its  issue 
or  the  drawer  will  be  discharged  from  liability  thereon  to  the 
extent  of  the  loss  caused  by  the  delay. 

Certified  check. — Section  1684 — 3-  Where  a  check  is  certi- 
fied by  the  bank  on  which  it  is  drawn,  the  certification  is  equiv- 
alent to  an  acceptance. 

Discharge  of  liability  of  drawer  and  indorsers.— Section  1684 
— 4.  Where  the  holder  of  a  check  procures  it  to  be  accepted  or 
certified  the  drawer  and  all  indorsers  are  discharged  from  lia- 
bility thereon. 

Check  not  assignment  funds. — Section  1684 — 5-  A  check  of 
itself  does  not  operate  as  an  assignment  of  any  part  of  the 
funds  to  the  credit  of  the  drawer  with  the  bank,  and  the  bank 
is  not  liable  to  the  holder,  unless  and  until  it  accepts  or  certi- 
fies the  check. 

Sections  repealed. — Section  1684 — 7.  Sections  176, 1675, 1676, 
1677,  1678,  1679,  1680,  1681,  1682,  1683,  and  1684  of  the  statutes 
of  1898  are  hereby  repealed.  Sections  1944,  1945,  4i93»  4*94, 
4425  and  4458  of  said  statutes  are  not  affected  by  this  act,  and 
nothing  herein  shall  be  deemed  to  repeal  any  part  of  such  sec- 


284       THE  LAW  OF  COMMERCIAL  PAPER 

tions.  All  other  provisions  inconsistent  with  this  chapter  are 
repealed. 

Section  3.  This  act  shall  take  effect  and  be  in  force  from  and 
after  its  passage  and  publication. 

Approved  May  5,  1899. 


INDEX  TO  APPENDIX 

(Numbers  refer  to  sections.) 


ACCEPTANCE— 
defined,  1675. 

form;  writing;  promise  to  ac- 
cept, 1680/ — i. 

drawee  has  one  day  for,  1680J. 
by  destroying  bill,   1680fc. 
not  by  mere  retention,  1680&. 
time  of,  1680Z. 

general  and  qualified,  1680m. 
place  of  payment,   1680n. 
qualified,  etc.,  16800. 
right  of  holder,  1680p. 
presentment  for,  1681,  1681-8. 
for  honor,  1681-18-27. 
of  bills  in  a  set,  1681-38. 

ACCOMMODATION  PAPER— 

cases  on,  1675-53,  n. 

defined,  1675-54. 

presentment  for  paymenA  ex- 
cused, when,  1678-10. 

when  notice  of  dishonor  not  re- 
quired, 1678-45. 

ACCEPTOR— 
obligation  of,  etc.,  1677-2. 

ACTION— 
defined,  1675. 

ADMINISTRATOR— 

notice  of  dishonor  to,  1678-28. 
presentment  for  acceptance  to, 
1681-2. 

AGENT— 

notice  of  dishonor  by,  1678-21, 

24. 

notice  to,  1678-27. 
signature  by,  1675-19. 
when  personally  liable,  1675-20. 
liability    on    transfer    without 

indorsement,  1677-9. 


ALLONGE— 

indorsement  on,  1676-1,  n. 

ALTERATION— 

effect  of;  what  is,  1679-5. 
certain,  what  are,  1679-6. 

ANTECEDENT  DEBT— 
as  a  consideration,  1675-51. 

ASSIGNEE  IN  INSOL- 
VENCY— 

notice  of  dishonor  to,  1678-31. 
presentment  for  acceptance  to, 
1681-2. 

ASSOCIATION— 
person  means,  1675. 
bank  means,  1675. 

ASSIGNMENT— 

of  fund,  check  is  not,  1684-5. 
bill  is  not  an,  1680a. 

ASSUMED  NAME— 
signing  in,  1675-18. 

ATTORNEY'S  FEE— 
note  may  include,  1675-2. 

BANK— 

defined,  1675. 

lien  on  paper,  value  presumed, 

1675-53. 

indorsement  by,  1676-12. 
paper    payable    at,    effect    of, 

1678-17. 

BANKRUPT— 

notice  of  dishonor  to,  1678-31. 
presentment  for  acceptance  to, 
1681-2. 


285 


286 


INDEX  TO  APPENDIX 


BEARERr- 
defined,  1675. 

paper  payable  to,  what  is,  1675- 
9. 

BILLS  OF  EXCHANGE— 
provisions  as  to,  1680-1683. 
when  treated  as  notes,  1680dL 
defined,  1675. 
in  a  set,  1681-35-40. 
damages  on,  1682,  1683. 

BILLS  OF  LADING— 

are  negotiable  unless,  1675-1. 

BLANKS— 

filling  up,  1675-14,  15. 

BONA  FIDE  HOLDER— 

effect  of  blanks  filled  without 
authority,  1675-14. 

instrument  wrongly  dated, 
1675-13. 

of  incomplete  instrument,  1675- 
15. 

valid  delivery  conclusively  pre- 
sumed, 1675-16. 

value  presumed,  1675-50,  1675- 
52. 

with  lien  on  paper,  value  pre- 
sumed, 1675-53. 

of  collateral,  when  not,  1675- 
53,  n. 

of  accommodation  paper,  1675- 
55. 

may  convert  blank  indorsement 
to  special,  1676-5. 

under  restrictive  and  qualified 
indorsement,  1676-7,  8. 

may  strike  out  indorsement, 
1676-18. 

effect  of  transfer  without  in- 
dorsement, and  subsequent 
indorsement,  1676-19. 

right  to  sue,  1676-21. 

to  receive  payment,  1676-21. 

who  is  a,  1676-22. 

interest  overdue,  1676-22,  n. 

taking  demand  paper  an  un- 
reasonable time  after  issue, 
1676-23. 

notice  before  paying  in  full, 
1676-24. 


when  title  defective,  1676-25. 

fraud,  duress,  etc.,  1676-25. 

when  title  absolutely  void, 
1676-25. 

what  is  notice,  1676-26. 

holds  free  from  defenses,  ex- 
cept, 1676-27. 

taking  from  other  holder,  pro- 
tected, 1676-28. 

effect  of  fraud,  duress,  etc., 
1676-28,  n. 

every  holder  so  presumed,  1676- 
29. 

when  notice  of  dishonor  un- 
necessary, 1678-47. 

not  affected  by  alteration, 
1679-5. 

effect  of  written  promise  to  ac- 
cept, 1680i. 

BONDS,  MUNICIPAL— 
not  negotiable,  unless,  1675-1., 

BROKER— 

liability  on  negotiation  without 
indorsement,  1677-9. 

BURDEN  OF  PROOF— See  Pre- 
sumptions— 
cases  on,  1676-29,  n. 

CASHIER^- 

indorsing  paper  payable  to, 
1676-12. 

CERTAINTY— 
of  sum,  1675-2. 
what  language  affects,  1675-3, 

n. 
of  time,  what  is,  1675-4. 

CERTIFIED  CHECKS— 
provisions  as  to,  1684-3,  4. 

CHECKS— 
defined,  1684-1. 
presentment  for  payment,  1684- 

2. 

certified  checks,  1684-3. 
discharge   of   drawers  and   in- 

dorsers,  1684-4. 
not  an  assignment,  1684-5. 


INDEX  TO  APPENDIX 


287 


CITY  ORDERS— 
not  negotiable,  1675-1. 

COLLATERAL  SECURITY— 

sale  of,  no  effect  on  negotia- 
bility, 1675-5. 

holder  of  lien,  value  presumed, 
1675-53. 

cases  on  bona  fide  holder,  1675- 
53,  n. 

giving  up  is  a  discharge,  1679- 

COLLECTION  FEE— 
in  note,  effect  of,  1675-5. 

CONFESSION  OF  JUDG- 
MENT— 
in  note,  effect  of,  1675-5. 

CONSIDERATION— 
presumption  of,   1675-50. 
definition  of  value,  1675-51. 
antecedent  debt,  1675-51. 
absence  or  failure   a  defense, 
when,  1675-54. 

CONSTRUCTION— 
of  bills  and  notes,  1675-10. 
general  rules  for,   1675-17. 
of    several   writings   made   to- 
gether, 1675-17. 

CORPORATION— 
person  means,  1675. 
bank  means,  1675. 
indorsement  ultra  vires.   1675- 

22. 
indorsement  by,  1676-12. 

COUNTY  ORDERS— 
not  negotiable,  1675-1. 

CURRENCY— 

effect  of  notes  payable  in, 
1675-1,  1675-6. 

DAMAGES— 

on  dishonored  bills,  1682,  1683. 

DATE— 

to  note  or  bill  unnecessary, 
1675-6. 


deemed  to  be  correct,  1675-11. 
ante-dated  and  post-dated  pa- 
per valid,  1675-12. 
filling  up,  1675-13. 

DAYS  OF  GRACE— 
abolished,  1678-15. 

DEBT— 

antecedent,  as  a  consideration, 
1675-51. 

DELIVERY— 
defined,  1675. 
issue  is,  when,  1675. 
includes  indorsement,  1675. 
incomplete    instruments,    1675- 

14. 
filling  blanks  before  delivery. 

1675-15. 
paper  is  revocable  until,  1675- 

16. 
conclusively    presumed,     when, 

1675-16. 

prima  facie  proof  of,  1675-16. 
in  escrow,  1675-16,  n. 
procured  by  fraud,  1676-28,  n. 

DEMAND  PAPER— 
what  is,  1675-7. 
negotiation;    time  of,   1676-23. 
presentment  of,  1678-1. 

DISCHARGE  OF  NEGOTI- 
ABLE PAPER— 

by  payment,  tender,  merger, 
etc.,  1679,  1679-1. 

giving  up  collateral,  1679-1. 

extending  time,  1679-1. 

payment  by  indorser  or  drawer, 
1679-2. 

renunciation,  1679-3. 

cancellation,  1679,  1679-4. 

alteration,  1679-5,  6. 

by  taking  qualified  acceptance, 
1680p. 

by  not  presenting  for  accept- 
ance, 1861-1. 

by  payment  of  one  of  a  set, 
1681-40. 

of  checks,  by  certification,  etc., 
1681-4. 


288 


INDEX  TO  APPENDIX 


DISHONOR— 

of  paper,  what  is,  1678-13-18. 
notice  of,  1678-19,  48. 

DRAWEE— 

bill  to  two  or  more,  1680ft. 
liability  on  bills  in  a  set,  1681- 
38. 

DRAWER— (See     Discharge     of 

Negotiable  Paper.) — 
obligations  of,  etc.,  1677-1. 
presentment      to,      when      not 

necessary,  1678-9. 
notice  of  dishonor  to,  1678-19. 
to  agent,  1678-27. 
to  administrator,  1678-28. 
to  partners,  1678-29. 
to  joint  drawers,  1678-30. 
to  bankrupt  drawer,  1678-31. 
payment  by,  1679-2. 
discharge   by   qualified   accept- 
ance, 1680p. 

DURESS— 

effect  on  holder,  1676-25. 
cases  on,  1676-28,  n. 

EQUITABLE  ASSIGNMENT— 
drafts    and    checks    are    not, 
1680a,  1684-5. 

ESTOPPEL— 
to  claim  forgery,  1675-23. 

EXCHANGE— 
bill  may  include,  1675-2. 


EXECUTION, 
FROM— 


EXEMPTION 
not  here  authorized,  1675-5. 


EXECUTOR— 

notice  of  dishonor  to,  1678-28. 
presentment  for  acceptance  to, 
1681-2. 

EXEMPTION   FROM   EXECU- 
TION— 
not  here  authorized,  1675-5. 

EXTENSION  OF  TIME— 
as  a  discharge,  1679-1. 


FICTITIOUS  PERSON— 
paper  payable  to,  1675-9. 
no  presentment  necessary,  1678- 
12. 

FILLING  BLA'NKS— 
power  of  holder,  1675-14. 

FORCE— 

procuring  signature  by,  effect 

of,  1676-25. 
effect  of,  1676-28,  n. 

FORM— 

of  bills  and  notes,  1675-1. 

FOREIGN  BILLr- 
defined,  1680c. 

FORGERY— 

makes  paper  roid,  1675-23. 
estoppel  to  claim,  1675-23. 

FRAUD— 

signature    procured   by,    effect 

of,  1676-25. 
effect  of,  1676-28,  n. 
alteration  by,  bona  fide  holder 
protected,  1679-5,  n. 

FRAUDS,  STATUTE  OF— 
not  affected  by  this  act,  1675-6. 

FUND,  PARTICULAR— 

indicating,  in  note,  etc.,  1675-3. 
equitable     assignment,     1680a, 

GRACE,  DAYS  OF— 
are  abolished,  1678-15. 

GUARANTY— 
of   negotiable  paper,   1676,  n, 
1676-1,  n. 

HOLDER  (see  Bona  Fide  Hold- 
er)— 
defined,  1675. 

HOLIDAY— 

when  act  falls  on,  1675. 
,    paper  due  next  business  day, 
1678-15. 


INDEX  TO  APPENDIX 


289 


HONOR,  ACCEPTANCE  FOB— 
provisions  as  to,  1681-18-27. 
payment  for,  1681-28-34. 

ILLEGALITY— 

effect  on  paper,  1676-28. 

INDORSEE— 
as  the  holder,  when,  1675. 

INDORSER — (See  Discharge  of 

Negotiable  paper) — 
trho  is;  liability,  1677-3,  1677- 

4. 
warranty  and  liability,  1677-5, 

8. 
when  presentment  unnecessary, 

1678-10. 
notice  of  dishonor  to,  1678-19. 

to  agent  of,  1678-27. 

to  administrator  of,  1678-28. 

to  partners,  1678-29. 

to  joint  indorsers,  1678-30. 

to   bankrupt  indorser,   1678- 
31. 

excused  when,  1678-45, 
payment  by,  1679-2. 
discharge  by  qualified  accept- 
ance, 1680p. 

INDORSEMENT— 

by  incapacitated  person  passes 

title,  1675-22. 
negotiation  by,  1676. 
guaranty  is  not,  1676,  n. 
on   paper,    or   attached   paper, 

1676-1. 
with     or     without     guaranty, 

1676-1,  n. 

must  be  entire,  1676-2. 
kinds  of,  1676-3,  12. 
without  recourse,  1676-8. 
by  joint  holders,  not  partners, 

1676-11. 
of    paper    payable    to    one    as 

cashier,  etc.,  1676-12. 
in  misspelled  name,  1676-13. 
in      representative      capacity, 

1676-14. 

striking  out,  1676-18. 
after    assignment    without    in- 
dorsement, 1676-19. 
defined,  1675. 


when    signature   construed   as. 
1675-17. 

INDORSEMENT  IN  BLANK— 
makes  paper  payable  to  bearer, 

1675-9. 

negotiation  by,  1676. 
signature  enough,  1676-1. 
provided  for,  1676-3. 
holder  may  make  special,  1676- 

5. 

INFANT— 

indorsement  passes  title,  1675- 
22. 

INLAND  BILL— 
what  is  an,  1680c. 

INSOLVENCY— 

does   not   excuse    presentment, 

1678-11,  n. 
notice  of  dishonor,  1678-31. 

INSTALLMENTS— 
note  may  be  payable  in,  1675-2. 

INSTRUMENT— 
defined,  1675. 

INSURANCE  PREMIUM— 
note  for,  not  negotiable,  1676- 
27. 

INTEREST— 

presumed  to  begin,  when,  1675- 

ISSUE— 
defined,  1675. 

JOINT  DEBTORS— 
presentment  to,  1678-8.. 
notice  of  dishonor  to,  1678-30. 
presentment  for  acceptance  to, 
1681-2. 

JOINT  HOLDERS— 
indorsement  by,  1676-11. 

JOINT  INDORSEMENT— 
what  is,  1677-8,  n. 


290 


INDEX  TO  APPENDIX 


JUDGMENT       BY      CONFES- 
SION— 
note  may  authorize,  1675-5. 

LIEN— 

on  paper,  value  presumed,  1675- 
3. 

LIGHTNING  RODS— 
notes  given  for,  1675-la-c. 

MAIL— 

notice  of  dishonor  by,  1678-33. 

34-36. 
presentation  for  acceptance  by, 

1681-3. 

MAKER— 
obligations  of,  1677. 

MARRIED  WOMEN— 
when  notes  of,  negotiable,  1675- 
3,  n. 

MEMORANDA— 
on  note,  effect  of,  1675-10. 

MERGER— 

as  a  discharge,  1679. 

MONEY— 

current,  payment  in,  1675-6. 
current  funds,  note  good,  1675- 
1,  n. 

MUNICIPAL  BONDS— 
not  negotiable,  unless,  1675-1. 

NEGOTIABLE  PAPER  ACT—  ' 
not  retrospective,  1675. 

NEGOTIABILITY— 
negotiable  words,  1675-1. 
negotiable  indorsement,  1675-1, 
n. 

NEGOTIATION— 
transfer     without,     incapacity, 

1675-22. 

how  made,  1676. 
with  or  without  guaranty,  1676- 

1,  n. 


presumed  to  have  been  before 

due,  1676-15. 
at    place    of    date    presumed, 

1676-16. 
liability  upon,  1677-5. 

NOTARIAL  ACT  OF  HONOR— 
form  of,  1681-30. 

NOTARY  PUBLIC— 
protest  by,  1681-11. 

NOTE— 

means  negotiable  note,  1675. 

NOTICE  OF  DISHONOR— 
to  whom,  1678-19,  1678-27,  28. 
by  whom,  1678-20. 
by  agent,  1678-21. 
effect  of,  1678-22,  23. 
duty  of  agent,  1678-24. 
written;  oral;  form;  by  mail, 

1678-25,  1678-33,  34. 
unsigned,  mistake,  1678-26. 
to  agent,  1678-27. 
to     administrator;     last     resi' 

dence,  1678-28. 
to  partners,  1678-29. 
to  joint  partners,   1678-30. 
to  bankrupt  or  insolvent,  1678- 

31. 

time  of,  1678-32. 
when  in  same  place,  1678-33. 
in  different  places,  1678-34. 
by  mail,  miscarriage,  1678-25, 

33,  34,  35,  36. 
by  one  receiving  notice,  1678- 

37. 

to  what  place,  1678-38. 
waiver  of,  1673-39,  40. 
waiver  of  protest,  effect  of, 

1678-41. 

dispensed  with,  when,  1678-42. 
delay  excused,  when,  1678-43. 
to  drawer  excused,  when,  1678- 

44. 
to     indorser     excused,     when, 

1678-45. 
effect    of,    of    non-acceptance. 

1678-46. 

omission    no    effect    on    subse- 
quent holder,  1678-47. 
protest  optional,  1678-48. 


INDEX  TO  APPENDIX 


291 


NOTICE  OF  INFIRMITY— 
to  holder,  before  paying  in  full, 

1676-24. 
-what  amounts  to,  1676-26. 

ORDER— 
paper  payable  to,  what  is,  1675- 

8. 

ORDERS— 

city,  etc.,  not  negotiable,  1675- 
1. 

PARTNERS— 

indorsement  by,  1676-11. 
as  holders  for  value,  1676-22. 
presentment    for    payment    to, 

1678-7. 
notice  of  dishonor  to,  1678-29. 

PARTICULAR  FUND— 
indicating,  effect  of,  1675-3. 

PAYEE— 

is  the  holder,  when,  1675. 
who  may  be,  1675-9. 

PAYMENT— 

place  of,  unnecessary  in  note 

or  bill,  1675-6. 
presentment    for,    1678 — 1678- 

12. 

time  of,  1678-14-18. 
at  bank;  in  due  course,  1678- 

17,  18. 

as  a  discharge,  1679. 
by  one  secondarily  liable,  1679- 

2. 

of  one  of  a  set,  1681-40. 
of  checks,  presentment  for, 

1684-2. 

PAYMENT  FOR  HONOR— 
provisions  as  to,  1861-28-34. 

PERSON— 
defined,  1675. 

PLEDGEE— 
value  presumed,  1675-53. 

PRE-EXISTING  DEBT— 
as  a  consideration,  1675-51. 


PRESENTMENT  FOR  AC- 
CEPTANCE— 

when  necessary,  1681. 

by  and  to  whom,  1681-2. 

time,  place,  excuse,  dishonor, 
1681-3-8. 

PRESENTMENT  FOR  PAY- 
MENT— 

necessary  to  charge  drawer  and 
indorser,  1678. 

time  of,  1678-1. 

by  whom,  to  whom,  hour,  place, 
1678-2. 

what  is  a  proper  place,  1678-3. 

paper  must  be  shown,  1678-4. 

during  banking  hours,  when, 
1678-5. 

to  administrator,  when,  1678-6. 

to  partners,  1678-7. 

to  joint  makers,  etc.,  1678-8. 

to  drawer,  when  excused,  1678- 
9. 

to  indorser,  when  excused,  1678- 
10. 

delay,  when  excused,  1678-11. 

when  dispensed  with,  1678-12. 

to  acceptor  for  honor,  1681-25. 

PRESUMPTIONS— 

that  date  is  correct,  1675-11. 

of  consideration,  1675-50. 

of  negotiation  before  due,  1676- 

15. 
of  negotiation  at  place  of  date, 

1676-16. 

of  bona  fide  holding,  1676-29. 
cases  on  burden  of  proof,  1676- 

29,  n. 

PRIMARY  LIABILITY— 
what  is,  1675. 

PRINCIPAL     AND     AGENT— 

(See  Agent). 

PRINCIPAL  AND  SURETY— 
(See  Guaranty,  Indorser). 

PROMISSORY  NOTE— 
note    means    negotiable    note, 

1675. 

when  bill  treated  as,  16805. 
form,  etc.,  1684. 


292 


INDEX  TO  APPENDIX 


PROTEST— 

when  required,  form,  etc.,  1681- 

9-17. 
waiver  of,   includes  notice   of 

dishonor,  1678-41. 
for   non-payment   by   acceptor 

supra  protest,  1681-27. 
waiver  of,  effect  of,  1678-41. 
is  optional,  1678-48. 

RAILROAD  RECEIPTS— 
negotiable,  unless,  1675-1. 

REASONABLE  TIME— 
what  is,  1675. 

REFEREE      IN      CASE      OF 

NEED— 
defined,  1680e. 

RELEASE  OF  PRINCIPAL— 

discharges  surety,  1679-1. 

RENEWAL  OF  PAPER— 
effect  of,  1676-28,  n. 

REVENUE  STAMP— 

omission  of,  effect,  1675-1,  n. 

SEAL— 

note  or  bill  may  have,  1675-6. 

SECONDARY  LIABILITY— 
what  is,  1675. 

SIGNATURE— 

necessary,  1675-1,  1675-18. 
on  blank  paper,  1675-14. 
ambiguous,     an     indorsement, 

1675-17. 
in    trade    or    assumed    name, 

1675-18. 
subscription  unnecessary,  1675- 

18,  n. 

by  agent,  1675-19,  1675-20. 
by  procuration,   1675-21. 
without   authority   void,    1675- 

23. 

STAMP,  REVENUE — 
omission  of,  effect  of,  1671-1, 

ZL 


STATUTE  OF  FRAUDS— 
not  affected  by  this  act,  1675-6. 

STRIKING     OUT     INDORSE- 
MENT— 
by  holder,  1676-18. 

SUNDAY— 

when  act  falls  on,  1675. 
paper  due  next  business  day, 
1678-15. 

SUPRA  PROTEST— 
acceptance,  1681-18-27. 
payment,  1681-28-34. 

SURETY — (See  Guarantor,  In- 
dorser) . 

TENDER— 

as  a  discharge,  1679,  1679-1. 

TIME— 

Sunday   or  holiday,  when   act 

done,  1675. 
how  computed,   1678-15,   16. 

TOWN  ORDERS— 
not  negotiable,  1675-1. 

TRADE  NAME— 
signing  in,  1675-18. 

TRANSFER,  WITHOUT  IN- 
DORSEMENT— 

by  infant,  etc.,  1675-22. 

by  guaranty,  1676-1,  n. 

by  qualified  indorsement,  1676- 
8. 

of  paper  payable  to  order, 
1676-19. 

subsequent  indorsement  relates 
back,  1676-19. 

liability  on,  1677-5. 

liability  of  broker  or  agent, 
1677-9. 

TRUSTEE  IN  BANKRUPT- 
CY— 

notice  of  dishonor  to,  1678-31. 
presentment  for  acceptance  to, 
1681-2. 


INDEX  TO  APPENDIX 


293 


UNREASONABLE  TIME— 
what  is,  1675. 

USUAL  COURSE  OF  BUSI- 

NESS— 
what  is,  1676-22,  n. 

USURY— 
effect  on  extending  time,  1679- 


VALUE— 
means    valuable    consideration, 

1675. 
what  is,  1675-51. 

VALUE  RECEIVED— 

not  necessary  in  note  or  bill, 
1675-6. 

VILLAGE  ORDERS— 
not  negotiable,  1675-1. 


WAIVER     OF     NOTICE      OF 

DISHONOR— 
how  made,  1678-30,  40. 
waiver  of  protest  is,  1678-41. 

WAIVER  OF  EXEMPTIONS— 

not  authorized,  1675-5. 

WAIVER  OF  PRESENT- 
MENT— 
for  payment,  1678-12. 

WAREHOUSE  RECEIPTS— 
are  negotiable,  unless,  1675-1. 

WARRANTY— 

of  indorser,  1677-5,  1677-6,  8. 

WRITING— 
includes  print,  1675. 

WRITTEN— 
defined,  1675. 


INDEX  OF  SUBJECTS 


Absence  of  consideration  matter 

of  defense,  251 
Absence    of    voluntary    delivery, 

108 
Acceptance,  223,  272 

before   signing,  273 

by  some  but  not  all  drawees, 
79 

Conditional,   77 

Constructive,  75 

Day  of  presentment  for,  131 

Extrinsic  written,  74 

for  honor,  227,  278 

Form  of,  73 

General,  273 

in  writing,  272 

Kinds  of,  76 

Local,   78 

Mode  of  making,  133 

of  bill,  272 

of  bills  of  exchange,   71,  223 

of  dishonored  bill,  279 

on  any  part,  281 

on  paper  other  than  bill,  Writ- 
ten, 272 

on  the  liability  of  drawer  or 
indorjiers,  Effect  of  taking 
qualified,  80 

Partial,  77 

Payee  or  holder  need  not  take 
a  qualified,  79 

Presentment  for,  133,  224,  274 

Proper,    73 

Qualified,  273 
as  to  time,  78 

Refusal  of  qualified,  274 

Summary,  133 

supra  protest  for  honor,  278 

Time  allowed  for,  272 

Virtual,   75 

when    excused,   133 


Acceptance,  when  necessary,  Pre- 
sentment for,  127 
Acceptor,  258 

a  bankrupt,  When,  278 
Admissions  of,  175 
for  honor,  Engagement  of,  279 
How  presentment  is  made  to, 

279 
Liability  of,  279 

in  paying  part,  282 
Maker  and,  121 
Presentment    and    demand    of 
payment  not  necessary  to 
hold  maker  or,  122 
Promise    of    maker    and, 
121 
Accommodation     party     defined, 

252 

Accrues,  When  recourse,  276 
Acknowledgment  of  debt,  Writ- 
ten, 23 

Act,  Foundation  of  notarial,  280 
in    addition    to    payment    of 
money,    Instrument    must 
not      contain      order      or 
promise  to  do,  37 
of  honor,  Notarial,  280 
of  parties,  Transfer  by,  81 
of  1882,  Bills  of  exchange,  16 
of  1894,  191 
of  June  5,  1907,  199 
Actual    knowledge    of    infirmity 

necessary  to  notice,  257 
notice,  110 
Address  of  bill,  271 
Admissions  of  acceptor,  175 
of  drawer,  175 
of  maker,  175 

After  sight,  Bill  payable,  279 
Agent  not  liable,  250 

Notice  of  dishonor  by,  264 

in  hands  of  an,  264 
Signature  by,  250 


294 


INDEX  OF  SUBJECTS 


295 


Allowed    for    acceptance,    Time, 

272 

Alteration,  183 
Material,  271 

Altering  of  instrument,  270 
Ambiguities,  Construction  of,  249 
Amount  of  value,  115 
Antecedent    parties,    Notice    to, 

266 

Ante  or  post  dating,  247 
Any  part,  Acceptance  on,  281 
Appendix,  189 
Article  1,  Title  1,  200 

2,  Title  I,  205 

3,  Title  I,  206 

4,  Title  I,  209 

5,  Title  I,  211 

6,  Title  I,  213 

7,  Title  I,  216 

8,  Title  I,  220 

1,  Title  II,  222 

2,  Title  II,  223 

3,  Title  II,  224 

4,  Title  II,  226 

5,  Title  II,  227 

6,  Title  II,  229 

7,  Title  II,  229 
1,  Title  III,  230 
1,  Title  IV,  231 

"As  per  contract",  31 
Assignment    funds,    Check    not, 

-  283 

of  funds,  Not  an,  271 
of    notes    secured    by    chattel 

mortgage,  233 

Assumed  names,  Trade  or,  249 
As  to  foreign  bill,  Protest,  276 
As  to  title,  Burden  of  proof,  257 
At  a  bank,  Dishonor,  263 
At  or  after  death,  Instruments 

payable,  43 

Authority,     Incomplete     instru- 
ments completed  without. 
248 
to  pay,  26 


B 


Bank,  Dishonor  at  a,  263 

forged  check;  limitation,  251 
Banking   hours,   During,   261 
Bankrupt,  265 


Bankrupt,  When  acceptor    is  a, 

278 

"Bearer"  employed,   Word,  24 
Indorsement     of     instruments 

payable  to,  254 
instrument,  Indorser  of,  172 
to    be    negotiable    must    be 
made  payable  to  order  or, 
53 

Position  of  fraudulent,  60 
When  payable  to,  246 
Become    overdue,   When   negoti- 
able instruments,  125 
Before  signing,  Acceptance,  273 

value  paid,  Notice,  118 
Behalf  of  entitled  party,  Notice 

of  dishonor  on,  264 
Bill,  Acceptance  of,  272 

dishonored,    279 
Address  of,  271 
distinguished    from    authority 

to  pay,  26 
from  request,  26 
Inland  and  foreign,  271 
is  discharged,  When  whole,  282 
Lost,  278 

must  contain  order,  25 
of  exchange,  What  is  a,  271 
paid  for  honor,  280 
Payable  after  sight,  279 
Presentment  of,  275 
Protest  as  to  foreign,  276 
Summary  definition  of,  55 
When  one  in  a  set,  281 
Words  of  politeness  in,  25 
Written    acceptance   on   paper 

other  than,  272 

Bills  and  notes,  and  common  law 
debts,  Distinction  between, 
2 
differ    from    common    law 

debts,  2,  7 

Formal  requisites  of,  21 
Importance  of  rule,  4 
payable  in  money,  34 
sufficiently    certain    if    time 
specified  is  certain  to  ar- 
rive, 43 
transferable,  2 
Damages  on,  282 
in  a  set,  229,  281 
of  exchange,  271 


INDEX  OF  SUBJECTS 


Bills  and  Notes,  Acceptance  of, 

Act  of  1882,  16 
Title  II,  222 
Blank  indorsements,  85,  86 

Special  or,  252 
into  special  indorsement,  Con* 

version  of,  253 
Liability  of  indorser  in,  258 
Broker,  Negotiation  without  in- 
dorsement by,  260 
Burden  of  proof  as  to  title,  257 
By    agent,   Notice   of   dishonor, 

264 

Signature,  250 
broker,    Negotiation    without 

indorsement,  260 
corporation  or  infant,  Indorse- 
ment, 250 

delivery,    Indorsement    of    in- 
strument negotiable,  259 
mail,  Notice,  266 
mistake,  Cancellation,  270 
non-payment,  Dishonor,  262 
"procuration",  Signature,  250 
secondary   party,  When   paid, 
270 


Cancellation,  183 

by  mistake,  270 

Carelessness    a   matter   of   fact. 
58 

in  signing,  57 
Case  of  death,  In,  261 

of  need,  Referee  in,  272 
Certain  as  to  time  of  payment, 
Instrument  must  be,  40 

to  arrive,  Time  specified,  43 
Certainty  of  parties,  49,  53 
Certification  of  checks,  179 
Certified  check,  283 
Change  in  possession,  7 
Character    not    affected,    Nego- 
tiable, 245 

of  notice,  264 
Charge  drawer,  In  order  to,  262 

indorser,  In  order  to,  262 
Chattel  mortgage,  Assignment  of 
notes  secured  by,  233 


Check,  283 
Certified,  283 
Limitation     of    forged    bank. 

251 
Check     not     assignment     funds, 

283 

Presentation  of,  283 
Checks,  230 

Certification  of,  179 
Presentment  of,  179 
Commercial    paper,    Formal    re- 
quirements of,  21 
Common   law  debts   differ   from 

bills  and  notes,  7 
not  transferable,  2 
Completed  without  authority,  In- 
complete instruments,  248 
Conditional  acceptance,  77 
delivery,  Position  of  payee  in 

case  of,  60 
indorsement,  253 
indorsements,  91 
Instruments  payable  from  spe- 
cial fund  are,  28 
Consideration,  205,  251 
Example  of,  69 
matter  of  defense,  Lack  of,  251 
Moral,  70 

necessary    for    negotiable    in- 
strument, 66 
Preexisting  debt  as,  66 
Presumption  of,  70 
is,  What  a,  65 

Construction  of  ambiguities,  249 
Constructive  acceptance,  75 

notice,  111 
Contract,  As  per,  21 
Contracts    on    negotiable   paper, 

when  incomplete,  248 
Conversion  of  blank  into  special 

indorsement,  253 
Corporation   or  infant,   Indorse- 
ment by,  250 
Course,  Holder  in  due,  104,  113, 

123,   256 

other  than  in  due,  257 
Payment  in  due,  263 
Rights  of  holder  in  due,  257 
When   not    a   holder    in    due, 

256 

Cure,    Happening    of    condition 
does  not,  28 


INDEX  OF  SUBJECTS 


297 


Damages  on  bills,  282 
within  state,  Rate  of,  282 
without  state,  Rate  of,  282 
Date,  54 

Ante  or  post,  247 
prima  facie  evidence,  247 
Day  of  presentment  for  accept- 
ance, 131 
for  payment,  136 
Death,  In  case  of,  261 
Death,   Instruments  payable,  at 

or  after,  43 

Debt    as    a    consideration,    Pre- 
existing, 66 
Debtors,  Joint,  262 
Debts,  Common  law,  2 

Ordinary,  2 
Deceased  party,  265 
Defective  title,  256 
Defense,    Absence    of    considera- 
tion a  matter  of,  251 
Defenses,  Legal,  100 

Personal  or  equitable,  100 
Denned,    Accommodation    party, 

252 

Sum  payable,  244 
Terms,  241 
Value,  251 
Definition   of    a   bill    and   of   a 

note,  55 

Delay  excused,  161 
when  excusable,  275 
when  excused,  266,  267 
Delivered  as  such,  Incomplete  in- 
strument not  intentional- 
ly, 64 

Indorsement  must  be,  85 
Delivery,  59 

Absence  of  voluntary,  108 
Indorsement      of      instrument 

negotiable  by,  259 
Position   of  payee  in  case  of 

conditional,  60 
Presumption  of,  65 
Transfer  by,  81 
without  indorsement,  95 
Demand,  instruments,  48 
payable  on,  260 
Presentment    not    necessary 
in  case  of,  123 


Demand,    instruments    of    pay- 
ment by  holder  not  nec- 
essary to  hold  maker  or 
acceptor,  122 
When  payable  on,  246 
Destroying     negotiability,     Inci- 
dental     and      subsidiary 
clauses  not,  39 

Determinable  future  time,  245 
Different  parties,  280 
Indorsement  to,  281 
places,    Where    parties    reside 

in,  266 

Discharged,  When,  269 
whole  bill  is,  282 
Discharge    from    secondary    lia- 
bility, 269 
in  general,  181 
of  drawer  and  indorsers,  185 
of  liability  of  drawer  and  in- 
dorsers, 283 
of  negotiable  instruments,  220, 

269 

of  prior  party,  187 
Dishonor,  262 

By  whom  and  to  whom  notice 

of  is  given,  155 
Form  of  notice  of,  157 
Notice  of,  216,  263 

subsequent,  268 
Omission  to  give  notice  of,  268 
Place  notice  is  given,  159 
Protest  of,  268 
Time  of  notice,  157 
To  whom  notice  is  given,  161 
Dishonored  bill, Acceptance  of,  279 

When,  276 
Dispensed  with,  When,  262,  267, 

278 
presentment,     protest     and 

notice  are,  161 
Distinction    between    bills    and 

notes,  2 
Drawee,  53 

are  the   same  person,   Where 

drawer  and,  271 
Drawees,  Acceptance  by  some  but 

not  all,  79 
Drawer,  258 

Drawer,  Admissions  of,  175 
and  drawee  are  same  person, 
Where,  271 


298 


INDEX  OF  SUBJECTS 


Drawer,   and   indorser,   Promise 

of,  127 

and  indorsers,  127,  141,  166 
Discharge  of,  185 
Effect  of  taking  qualified  ac- 
ceptance on   the   liability 
of,  80 
liability   among  themselves, 

167 
order  of  liability  to  holders, 

166 

and  maker,  49 
In  order  to   discharge,   262 
is  not  required,  When  notice 

to,  268 

or  indorser,  Payment  by,  185 
Drawer's     or     indorser's     signal 
ture,  Cancellation  of,  186 
Drawer,  When  for,  279 
Drawn  to  fiscal  officer,  When,  254 
Due  bill,  23 
Due  course,  Holder  in,  100,  109, 

256 

other  than  in,  257 
Payment  in,  263 
Rights  of  holder  in,  257 
When  not  a  holder  in,  256 
Due  on  instrument,  Indorsement 
must    be    order    to    pay 
•whole  sum,  84 
Duress,   108 
During  banking  hours,  261 


E 


Effect  of  memoranda  on  instru- 
ment, 247 
of  taking  qualified  acceptance, 

80 
Engagement     of      acceptor     for 

honor,  279 

Entire,  Endorsement  is,  252 
Entitled  party,  Notice  on  behalf 

of,  264 

Equitable  defenses,  100 
Erasing  indorsements,  255 
Evidence,  Date  prima  fade,  247 
of    negotiation,    Prima    facie, 

254 

Example  of  consideration,  69 
Exchange,  Acceptance  of  bills  of, 


Exchange,  Act  of  1882,  Bills  of, 

Bills   of,   222,   271 
What  is  bill  of,  271 
Excusable,  When  delay  is,  275 
Excused,    When    delay    is,    161, 

262,  267,  275 
presentment   for    acceptance 

is,   133,  275 

Exhibition  of  instrument,  261 
Extrinsic  written  acceptance,  74 

F 
Face  of  note,  When  words  to  be 

printed  on,  243 
Fact,  Carelessness  a  matter  of, 

58 
Failure  to  present  or  negotiate, 

274 

to  return,  Refusal  or,  273 
Faith,  Good,  110 
Fictitious  payees,  51 
Fiscal   officer,   When   drawn  to, 

254 

Followed     by     special     endorse- 
ments, Blank,  86 
For      acceptance,     Presentment, 

274 

drawer,  When,  279 
Foreign  bill,  Inland  and,  271 

Protest  as  to,  276 
Forged  check;  limitation,  Bank, 

251 

Forgery,   111,  250 
For  honor,  Acceptance,  278 

supra  protest,  278 
Bill  paid,   280 
Engagement  of  acceptor,  279 
Payer,  281 
Payment,  280 
Form  1,  1 

2,  2 

Formal  requirements  of  commer- 
cial paper,  21,  37 
Form  and  interpretation  of,  bills 

of  exchange,  222,  271 
of    negotiable    instruments, 

200 

Wisconsin  law,  242 
Notice  of  dishonor,  152 
of  acceptance,  73 
of  indorsement,  82 


INDEX  OF  SUBJECTS 


299 


For  non-payment,  278 

Foundation  of  notarial  act,  280 

Fraud,  111,  257 

Intentional     signing     induced 
by,  59 

Fraudulent  payee  or  bearer,  Posi- 
tion of,  60 

From    secondary    liability,    Dis- 
charged, 269 

Funds,    Check    not    assignment, 

283 
ISTot  an  assignment  of,  271 

Future  time,  Determinable,  245 


Gaming,  234 

Garnishment,  234 

General  acceptance,  273 
Negotiable  instruments  in,  242 
or  qualified  acceptance,  273 
provisions,  Illinois  law,  231 
Wisconsin  law,  241 

Give   notice  of   dishonor,   Omis- 
sion to,  268 

Given,  To  whom  notice  is,  265 
When,  265 

Good  faith,  110 

Grace,  Without,  263 


Hands   of   an   agent,   Notice   of 

dishonor  in,  264 
Happening  of  the  condition  no 

cure,  28 

History  of  mercantile  law,  9 
Holder  has  lien,  When,  251 
in  due  course,   100,   109,   119, 

256 

Rights  of,  257 
When  not  a,  256 
Innocent,   244 
may  sue,  255 

need  not  take  a  qualified  ac- 
ceptance, 79 

not  necessary  to  hold  maker  or 
acceptor,  Presentment  and 
demand  of  payment  by, 
122 

Order  of  liability  to,  166 
other  than  in  due  course,  257 


Holder,    Right    of    recourse    of, 

263 

Rights  of  the,  209 
Subsequent,  264 
Holder's   refusal   supra   protest, 

281 
Honor,  Acceptance  for,  231,  278 

supra  protest  for,  278 
Bill  paid  for,  280 
Engagement    of    acceptor    for, 

279 
is    necessary,    When    notarial 

act  of,  280 
Payer  for,  281 
Payment  for,  229,  280 
Hour    of    presentment   for   pay- 
ment, 143 

Hours,  During  banking,  261 
How  given,  Notice  of  dishonor, 

263 
made,  Presentment  to  acceptor, 

279 
Protest,  277 


Illegality,  107,  108 

Illinois    negotiable    instruments 

law,  190 
Illustrations,  4 

Implicit   in   the   phrase   "holder 
in  due  course",  What  is, 
109 
In  a  set,  Bills,  281 

blank,    Liability    of    indorser, 

258 
case  of  death,  261 

need,  Referee,  272 
Inception  of   instrument   aa   ob- 
ligation, 57 
Incidental         and         subsidiary 

clauses,  39 

Incomplete  instruments,   62 
completed    without    authority, 

248 
not  intentionally  delivered  as 

such,  64 
When  contracts  on  negotiable 

paper  are,  248 

Indorsement,  Blank  and  special, 
85,  86 


INDEX  OF  SUBJECTS 


Indorsement  by  broker,  Negotia- 
tion without,  260 

by  corporation  or  infant,  250 

Conditional,  91,  253 

Conversion  of  blank  into  spe- 
cial, 253 

Delivery  without,  95 

Form  of,  82 

Indorsors   liable   in    order   of, 
260 

is  entire,  252 

Kinds  of,  85 

of    instrument    negotiable    by 
delivery,  259 

Qualified,  88,  253 

Restrictive,  93,  253 

Special   or   blank,   252 

to  different  parties,  281 

Transfer  by,  82 

What  is,  252 

special  or  blank,  252 
Indorsements,  Erasing,  255 

of     instruments     payable     to 
bearer,  254 

Subsequent,  255 

Transfer  without,  255 
Indorser,  258 

in  blank,  Liability  of,  258 

is  not  required,  When  notice 
to,  268 

of  bearer  instrument,  172 

Payment  by,  185 

Promise  of  drawer  and,  127 

Warranties  of,  172 

without     qualification,     War- 
ranty of,  259 
Indorsers,  Discharge  of,  185 

liability  of  drawer  and,  283 

Drawer  and,  127,  141,  166 

Effect  of  taking  qualified   ac- 
ceptance   on    liability    of, 


Liability  of  irregular,  169 
liable  in  order  of  indorsement, 

260 

order  of  liability  among  them- 
selves, 167 
to  holder,  166 

Indorser's     signature,     Cancella- 
tion of,  186 

Induced    by    fraud,    Intentional 
signing,  59 


In  due  course,  Payment,  263 
Infancy,  107 

Infant,  Indorsement  by  corpora- 
tion or,  250 
Infirmity     in     the     instrument, 

Notice  of,  256 

Infirmity  necessary  to  notice,  Ac- 
tual knowledge  of,  257 
In  hands  of  an  agent,  264 
instrument,  Waiver,  267 
Inland  and  foreign  bill,  271 
Innocent  holder   of  notes  taken 

for  patent,  etc.,  244 
purchaser  of  instrument  com- 
pleted in  excess  of  author- 
ity, 64 
the  instrument,  Position  of, 

61 
In  order  to  charge  drawer,  262 

indorser,  262 

In  paying  part,  Liability  of  ac- 
ceptor, 282 
Insanity,   107 

Installments,    Instruments    pay- 
able in,  44 

Instrument,  Altering  of,  270 
as  obligation,  Inception  of,  57 
completed  in  excess  of  author- 
ity, 64 
Consideration     necessary     for 

negotiable,  66 

Effect  of  memoranda  on,  247 
Exhibition  of,  261 
Indorsement  must  be  written 

on,  82 

Indorser  of  bearer,  172 
is  negotiable,  when,  242 
Must  be  certain  as  to  time  of 

payment,  40 
Must  be  order  to  pay  whole 

sum  due  on,  84 
must    not    contain    order    or 
promise  to  do  act  in  ad- 
dition    to     payment     of 
money,  37 

negotiable     by     delivery,     In- 
dorsement of,  259 
Notice  of  infirmity  in,  256 
Position  of  the  innocent  pur- 
chaser of,  61 

Statement  of  transaction  giv- 
ing rise  to,  31 


INDEX  OF  SUBJECTS 


301 


Instrument,    to    be    negotiable 

must  be  payable  to  order 

or  bearer,  53 
Waiver  in,  267 
when  negotiated,  252 
Instruments      become      overdue, 

when  negotiable,  125 
completed   without   authority, 

Incomplete,  248 
Demand,  48 
Discharge   of  negotiable,   269, 

220 

Incomplete,  62 

in    general,    Negotiable — Wis- 
consin law,  242 
law    of    Illinois,    Negotiable, 

190 
law  of  Wisconsin,  Negotiable, 

239 

law,  Uniform   negotiable,   189 
mature,  When  negotiable,  124 
Negotiable,  200 
not  intentionally  delivered  aa 

such,  Incomplete,  64 
Instruments  payable  at  or  after 

death,  43 

from  special  fund,  28 
in  a  reasonable  time,  43 

installments,   44 
on  demand,  260 
"on  or  before,"  44 
to  bearer,  Indorsement  of,  254 
to  two  or  more  persons,  254 
Presentment  not  necessary  in 

case  of  demand,  123 
Uncompleted,  247 
Undated,  247 
where    fund    referred    to    ia 

source  of   reimbursement, 

29 

Insurance  premiums,  257 
Intentionally  delivered  as  such, 

Incomplete         instrument 

not,  64 

Intentional  signing,  57,  59 
Interest,  31 
Interpretation,  56 
Form  and,  242,  271 
of    bills    of    exchange,    Form 

and,  222 
of      negotiable      instruments, 

Form  and,  200 


Into    special    indorsement,    Con- 
version of  blank,  253 
Introduction,  1 
In  writing,  Acceptance,  272 
Promise,  272 
To  be,  279 
Irregular      indorsers,      Liability 

of,  169 

Is  bill  of  exchange,  What,  271 
discharged,   WTien  whole  bill, 
282 


Joint  debtors,   262 
parties,  265 


Kinds  of  acceptance,  76 
Knowledge    of    infirmity    neces- 
sary to  notice,  24 


Law  of  Illinois,  Negotiable  in- 
struments, 190 

of    Wisconsin,   Negotiable   in- 
struments, 239 
Transfer  by  operation  of,  80 
Uniform     negotiable      instru- 
ments, 179 
Legal  defences,  100 
Length  of  negotiability,  255 
Liabilities  of  parties,  211,  258 
Liability      among      themselves, 
Drawer  and  indorsers,  or- 
der of,  167 

Discharge  from  secondary,  269 
Negative  personal,  254 
of  acceptor,  279 

in  paying  part,  282 
of  drawer  and  indorsers,  Dis- 
charge of,  283 
Effect  of  taking  qualified,  80 
of  indorser  in  blank,  258 
of  irregular  indorsers,  169 
to  holder,  Order  of,  166 
Liable,  Agent  not,  250 

in   order   of   indorsement,   In- 
dorsers, 260 
Lien,  When  holder  has,  251 


302 


INDEX  OF  SUBJECTS 


Limitation,  Bank,  forged  check; 
251 

Limitations,  235 
Local  acceptance,  78 
Lost  bill,  278 
When  recourse  is,  276 


Made,  How  presentment  to  ac- 
ceptor is,  279 
When,  277 

When  and  where  presentment 
for  acceptance  is  to  be, 
275 

Where,  277 

Where     presentment     for     ac- 
ceptance is,  274 
Mail,  Notice  sent  by,  266 
Mailed,  When  notice  is,  266 
Maker,  258 

Admissions  of,  175 
and  acceptor,  121 
Promise  of,   121 
Drawer  and,  49 
or  acceptor,  Presentment  and 
demand    of    payment    not 
necessary  to  hold,  122 
Making  presentment  for  accept- 
ance, Mode  of,  133 
Manner   of   presenting,   Present- 
ment for  payment,  147 
Material  alteration,  271 
Materials  for  writing,  21 
Matter    of    defense,    Absence    of 

consideration,  251 
of  fact,  Carelessness  a,  58 
Mature,  When  negotiable  instru- 
ments,  124 
Maturity,  263 
May    give    notice    of   dishonor, 

Who,  263 
sue,  Holder,  255 
Memoranda,  on   instrument,   Ef- 
fect of,  247 
Mercantile  law  adopted  in  U.  S., 

16 

History  of,  9 
Misspelled  names,  254 
Mistake,  Cancellation  by,  270 
Mode  of  making  presentment  for 
acceptance,   133 


Money,  Bill  or  note  must  be  pay- 
able in,  34 

Notes    for    payment   of   prop- 
erty other  than,  235 
Moral  consideration,  70 
Mortgage,   Assignment   of  notes 

secured  by  chattel,  233 
Municipalities,  Orders  of,  243 
Must  be   an   order   to  pay,   In- 
dorsement, 83 

whole    sum   due  on   instru- 
ment, 84 

delivered,  Indorsement,  85 
written     on     instrument,    In- 
dorsement, 82 


N 


Names,  Misspelled,  254 

Trade  or  assumed,  249 
Necessary  for  negotiable  instru- 
ment, Consideration,  66 
Presentment  when,  260 
to    notice,    Actual    knowledge 

of  infirmity,  257 
When  notarial  act  of  honor  is, 

280 

Need  not  take  a  qualified  accept- 
ance, Payee  or  holder,  79 
Referee  in  case  of,  272 
Negative  personal  liability,  254 
Negotiability,      Incidental      and 
subsidiary  clauses  not  de- 
stroying, 39 
Length  of,  255 
not    affected,    when,    Validity 

and,  245 

Negotiable  by  delivery,  Indorse- 
ment   of    instrument,    259 
character  not  affected,  245 
Act  of  June  5,   1907,   199 
Negotiable    instruments    become 

overdue,  When,  125 
Negotiable   instruments,   Consid- 
eration necessary  for,  66 
Discharge  of,  220,  269 
in  general,  Wisconsin  law,  242 
Law  in  U.  S.,  17 
Law  of  Illinois,  190 
Law  of  Wisconsin,  239 
Law   prescribes  formal  requi- 
sites, 21 


INDEX  OF  SUBJECTS 


Negotiable      Instruments     Law, 

Uniform,  189 
mature,  When,  124 
must  be  made  payable  to  or- 
der or  bearer,  Instrument 
to  be,  53 
notes  defined,  282 
paper,  Contracts  on,  when  in- 
complete, 248 
When   instrument  is,  242 
Negotiated,  When  instrument  is, 

252 

parts  are,  281 
Negotiate,  Failure  to  present  or, 

274 
Negotiation,  80,  81,  84,  85,  88, 

92,  252 

Prima  facie  evidence  of,  254 
Negotiations,  206 
Negotiation  without  indorsement 

by  broker,  260 
Non-negotiable,  Notes  taken  for 

patent,   etc.,   244 
Non-payment,  Dishonor  by,  262 
For,    282.      Not    a   holder    in 

due  course,  When,  256 
Notarial  act,  Foundation  of,  280 
of  honor,  when  necessary,  280 
Not    assignment    funds,    Check, 

283 
Note  must  be  payable  in  money, 

34 

contain  promise,  22 
Notes    and    checks,    Promissory, 

282,  320 
Bills  and,  2 

defined,  Negotiable,  282 
for  payment  of  property  other 

than  money,  235 
secured   by   chattel   mortgage, 

Assignment  of,  233 
taken     for     patent,  etc.,  non- 
negotiable,    244 

Note  sufficiently  certain  if  time 
specified  is  certain  to  ar- 
rive, 43 

Summary  definition  of,  55 
When  words  to  be  printed  on 

face  of,  243 
without     statement     required, 

Penalty  of  taking,  243 
Notice,  Actual,  110 


Notice,    knowledge    of    infirmity 

necessary  to,  257 
before  value  paid,  118 
by  agent,  264 
Character  of,  264 
Constructive,    111 
How  given,   263 
of  dishonor,  220,  216,  263 
by   whom    given,   to    whom 

given,  155 
form,    152 
place,  159 
time,   157 

to  whom  given,  161 
where  sent 
of  infirmity  in  the  instrument, 

256 

Omission  to  give,  268 
on    behalf    of    entitled    party, 

264 

to  antecedent  parties,  266 
drawer,  when  not  required, 

268 
indorser,  when  not  required, 

268 

Waiver  of,  267 
when    delay    is    excused,    267 

dispensed  with,  161,  267 
Who  may  give,  263 
Not  liable,  Agent,  250 

required,      When      notice      to 

drawer  is,  268 
indorser  is,  268 


Obligation,   Inception   of   instru- 
ment as,  57 
Obligations  of  parties,  121,  127, 

141,  166 

Of   acceptor   for  honor,   Engage- 
ment, 279 
in    paying    part,    Liability, 

282 

Liability,  279 
an  agent,  In  hands,  264 
bill,  Acceptance,  272 
Address,    271 
Presentment,  275 
check,  Presentation,  283 
damages    within    state,    Rate, 
282 


304 


INDEX  OF  SUBJECTS 


Of  damages  without  state,  Rate. 

282 
dishonored     bill,     Acceptance, 

279 

exchange,  What  is  bill,  271 
Officer,    When    drawn    to    fiscal, 

254 
Of    funds,    Not    an    assignment, 

269 

honor,  Notarial  act,  280 
instrument,  Altering,  270 
liability  of  drawer  and  indors- 

ers,  Discharge,  269 
need,  Referee  in  case,  272 
negotiable     instruments,     Dis- 
charge, 269 

notarial  act,  Foundation,  280 
notice,  Character,  264 
protest,  Specifications,  277 
qualified    acceptance,    Refusal, 

274 

rights,  Renunciation,  270 
subsequent  dishonor,  Notice, 

268 

Omission  to  give  notice,  268 
On  any  part,  Acceptance,  281 
behalf   of  entitled  party,  No- 
tice, 264 

bills,  Damages,  282 
demand,  Instruments  payable, 

260 

On  demand,  When  payable,  246 
One  bill,  When,  281 
"On  or  before,"  Instruments  pay- 
able, 44 

On  paper  other  than  bill,  Writ- 
ten acceptance,  272 
Operation   of   law,   Transfer   by, 

80 
Order,    Bill    must    contain    an, 

25 
must  be  to  pay  sum  certain, 

32 

unconditional,  27 
of  indorsement,  Indorsers  lia- 
ble in,  260 

of  liability  among  themselves, 
Drawer  and  indorsers,  167 
to  holder,   166 

or  bearer,  Instrument  to  be 
negotiable  must  be  made 
payable  to,  53 


Order  or  promise  to  do  act  in 
addition  to  payment  of 
money,  37 

Orders  of  municipalities,  243 
Or  negotiate,  Failure  to  present, 

274 

Other  provisions,  233 
than  bill,  Written  acceptance 

on  paper,  272 
in  due  course,  Holder,  257 
money,   Notes    for    payment 

of  property,  235 
Order  to  charge  drawer,  In,  262 

indorser,   262 
to  pay,  Indorsement  must  be, 

83, 

whole  sum  due  on  instru- 
ment, Indorsement  must 
be,  84 

When  payable  to,  246 
Ordinary  debts,  2 
"Or  order"  employed,  Words,  24 
Overdue,    When    negotiable    in- 
struments become,  125 


Paid  by  secondary  party,  When, 

270 

for  honor,  Bill,  280 
Notice  before  value,   118 
Paper     are     incomplete,     When 
contracts     on     negotiable, 
248 
Paper  other  than  bill,  Written 

acceptance  on,  272 
Part,  Acceptance  on  any,  281 
Partial  acceptance,  77 
Parties,  48 

Certainty  of,  49,  51,  53 

Different,    280 

Indorsement  to  different,  281 

Joint,  265 

Liabilities  of,  211,  258 

Notice  to  antecedent,  266 

Obligations  of,   121,   127,   141, 

166 
reside       in      different      place, 

When,   266 

same  place,  When,  265 
Transfer  by  act  of,  80 
Part,    Liability    of    acceptor    in 
paying,  282 


INDEX  OF  SUBJECTS 


305 


Partners,   261,  265 

Parts  are  negotiated,  Where,  281 

Party,  Deceased,  265 

defined,   Accommodation,   252 
Discharge  of  prior,  187 
Notice    on   behalf   of   entitled, 

264 

Reissue  by  prior,  255 
When  paid  by  secondary,  270 
Patent,       etc.,       non-negotiable, 

Notes  taken  for,  244 
Payable  after  sight,  Bill,  279 
at  or  after  death,  Instruments, 

43 

defined,  Sum,  244 
in  a  reasonable  time,  Instru- 
ments, 43 
in    installments,    Instruments, 

44 
in  money,  Bill  or  note  must  be, 

34 
on   demand,   Instruments,   260 

When,  246 

"on  or  before,"  Instruments,  44 
to  bearer,  Indorsement  of  in- 
struments, 254 
to   bearer,  When,   246 
to  order  or  bearer,  Instrument 
to  be  negotiable  must  be 
made,  53 
When,   246 

to  two   or   more   persons,   In- 
struments,  254 
Payee,  51 

in  case  of  conditional  delivery, 

Position  of,  60 

or  bearer,  Position  of  fraudu- 
lent, 60 

or  holder  need  not  take  a  quali- 
fied acceptance,  79 
Payees,  Fictitious,  51 
Payer  for  honor,  281 
Pay,    Indorsement   must    be    or- 
der to,  83 

Paying     part,     Liability   of   ac- 
ceptor  in,   282 
Payment,  181 

by  drawer  or  indorser,  185 
by    holder    not    necessary    to 
hold    maker    or    acceptor, 
Presentment   and   demand 
of,    122 


Payment,    by    whom,    to    whom, 

Presentment   for,    146 
Day  of  presentment  for,  136 
for  honor,  229,  280 
For  non-,  278 

Hour  of  presentment  for,  143 
in   due   course,   263 
Instrument  must  be  certain  aa 

to  time  of,  40 

Manner  of  presentment  for,  147 
of  property  other  than  money, 

Notes  for,  235 
Place  of,  54 

presentment  for,  141 
Presentment  for,  213,  260 
specified,  Time  of,  24 
aupra  protest,  280 
Time  of,  263 

Pay  whole   sum   due   on   instru- 
ment,   Indorsement    must 
be  an  order  to,  84 
Penalty  for  taking  note  without 

statement    required,    243 
Personal  liability,  Negative,  254 

or  equitable  defenses,  100 
Persons,  Instruments  payable  to 

two  or  more,  254 
Person,       Where       drawer     and 

drawee  are  same,  271 
Phrase  "Holder  in  due  course," 
What  is   implicit   in  the, 
109 

Place,  Notice  of  dishonor,  159 
of  payment,  54 
of    presentment    for    payment, 

141 

Presentment  at  proper,  261 
Politeness   in   a   bill,   Words   of, 

25 
Position  of  fraudulent  payee  or 

bearer,  60 
of  payee  in  case  of  conditional 

delivery,    60 
of   innocent   purchaser   of   the 

instrument,  61 
Possession    of    bills      and   notes, 

Change  in,  7 

P6st  dating,  Ante  or,  247 
Preexisting   debt   as   a  consider- 
ation, 66 

Premiums,   Insurance,   257 
Presentation  of  check,  283 


306 


INDEX  OF  SUBJECTS 


Presenting  for  payment,  Manner 

of,  147 

Presentment     and     demand     of 
payment    by     holder    not 
necessary   to   hold   maker 
or  acceptor,  122 
at  proper  place,  261 
for  acceptance,  224,  274 
day,  131 

mode  of  making,   when  ex- 
cused, summary,  133 
Presentment       for       acceptance, 

when  necessary,   127 
payment,  213,  260 
by  whom,  to  whom,  146 
Day  of,  136 
Hour  of,  143 

manner  of  presenting,  147 
Place  of,  141 
of  bill,  275 
of  checks,  179 
protest    and    notice    dispensed 

with,  161 
when  excused,  275 
Presentment,  Sufficient,  260 
to  acceptor,  how  made,  279 
when  necessary,  260 
Present  or  negotiate,  Failure  to, 

274 

Presumed,  Value,  251 
Presumption  of  consideration,  70 

of  delivery,  65 
Presumptions,  251,  255 
Prima  facie  evidence,  Date,  247 

of  negotiation,  254 
Printed   on   face  of   note,  When 

words  to  be,  243 
Prior  party,  Discharge  of,  187 

Reissue   by,   255 
"Procuration,"  Signature  by,  250 
Promise  in  writing,  272 
Note  must  contain,  22 
of  drawer  and  indorser,  127 
of  maker  and  acceptor,  121 
or  order  must  be  to  pay  sum 

certain,  32 
unconditional,   27 
to  do  act  in  addition  to  pay- 
ment of  money,  37 
Unqualified  order  or.  244 
Promissory    notes     and    checks,  ! 
230,   282 


Proof  as  to  title,  Burden  of,  257 
Proper  acceptance,  73 

place,  Presentment  at,  261 
Property     other     than     money, 
Notts  for  payment  of,  235 
Protest,  148,  226,  268,  276 

dispensed  with,   161 
Protest    for    honor,    Acceptance 
supra,  278 

Holder's  refusal  supra,  281 

Payment  supra,  280 

Specifications  of,  277 

Waiver,  267 
Provisions,  General,  231,  241 

Other,  233 

Purchaser  of  the  instrument,  Po- 
sition of  the  innocent,  61 


Q 

Qualification,    Warranty    of    in- 
dorser without,  259 
Qualified  Acceptance,  273 
Effect  of  taking,  80 
General  or,  273 
Payee  or  holder  need  not  take, 

*  79 

Refusal  of,  274 
Qualified  as  to  time,  Acceptance, 

/O 

Qualified    indorsements,    88,   253 


Rate   of   damages    within    state, 

282 

without  state,  282 
Reading,  Signing  without,  57 
"Reasonable"   or   "unreasonable"' 

times,  242 
time,   Instruments  payable  in 

a,  43 

Receipts,  Warehouse,   243 
Recourse  accrues,  When,  276 
of  holder,  Right  of,  263 
when  lost,  276 
Referee  in  case  of  need,  273 
Refusal   of   qualified   acceptance, 

274 

or  failure  to  return,  273 
eupra  protest,  Holder's,  281 


INDEX  OF  SUBJECTS 


307 


Reimbursement,  Instruments 
where  fund  is  source  of, 
29 

Reissue  by  prior  party,  255 
Renunciation,   185,  187 

of   rights,   270 
Repealed,  Sections,  283 
Request,  Bill  distinguished  from, 

26 

Required,     Penalty     for     taking 
note    without    statement, 
243 
When  notice  to  drawer  is  not, 

268 

indorser  is  not,  268 
Reside  in  different  place,  Where 

parties,   266 

same  place,  Where  parties,  265 
Restrictive  indorsement,  253 

indorsements,  93 
Return,    Refusal    or    failure   to, 

273 

Right  of  recourse  of  holder,  263 
Rights  of  the  holder,  209,  255 
in  due  course,  257 
Renunciation  of,  270 


Same  person,  Where  drawer  and 

drawee  are,  271 
place,  Where  parties  reside  in, 

265 
Secondary     liability,     Discharge 

from,  269 

party,  When  paid  by,  270 
Sections  repealed,  283 
Secured     by     chattel    mortgage, 
Assignment  of  notes,  233 
Sent,  Where  notice  is  to  be,  266 
Set,  Bills  in  a,  229,  233,  281 
Sight,  Bill  payable  after,  279 
Signature,  49 
by  agent,  250 
by  "procuration,"  250 
Cancellation  of  drawer's  or  in- 

dorser's,  186 

Signing,  Acceptance  before,  273 
Carelessness  in,  57 
induced  by  fraud,  Intentional, 

59 
Intentional,  57 


Signing,  without  reading,  57 
Some  but  not  all  drawees,  Ac- 
ceptance by,  79 
Special   indorsements,   86,  89 
indorsement,      Conversion      of 

blank  into,  253 
or    blank    indorsement,    What 

is,  252 

Specifications  of  protest,  277 
Specified  time  certain  to  arrive, 

43 

of  payment,  24 
Statement  of  transaction  giving 

rise    to    instrument,    31 
required,    Penalty    for    taking 

note  without,  243 
State,  Rate  of  damages  within, 

282 

without,   282 
Subsequent   dishonor,  Notice  of, 

268 

holder,    264 
indorsements,  255 
Subsidiary     clauses,     Incidental 

and,  39 

Sue,  Holder  may,  255 
Sufficient  presentment,  260 
Sum   certain,   Promise   or   order 

must  be  to  pay  a,  32 
due    on    instrument,    Indorse- 
ment   must    be    order    to 
pay  whole,  84 
Sum  payable  defined,  244 
Summary,  8 

definition  of  a  bill  and  of  a 

note,  55 
Presentment     for     acceptance, 

133 

Supra  protest  f.or  honor,  Accept- 
ance, 278 

Holder's  refusal,  281 
Payment,    280 


Take  a  qualified  acceptance, 
Payee  or  holder  need  not, 
79 

Taken  for  patent,  etc.,  non- 
negotiable,  Notes,  244 

Taking  note  without  statement 
required,  Penalty  for,  243 


308 


INDEX  OF  SUBJECTS 


Taking  qualified  acceptance,  Ef- 
fect of,  80 
Terras    defined,    Wisconsin    law, 

241 
Time,  Acceptance  qualified  as  to, 

78 

allowed  for  acceptance,  272 
Determinable  future,  245 
Instruments  payable  in  a  rea- 
sonable, 43 

of  notice  of  dishonor,  157 
of  payment,  24,  263 

Instrument  must  be  certain 

as  to,  40 

specified  certain  to  arrive,  43 
Times,  "Reasonable"  or  "unrea- 
sonable," 242 

Title  I,  Negotiable  Instruments, 
200 

II,  Bills  of  exchange,  222 

III,  Promissory     notes     and 
checks,  230 

IV,  General  Provisions,  231 
Burden  of  proof  as  to,  267 
Defective,  256 

To  acceptor,  How  presentment  is 

made,    279 

antecedent  parties,  Notice,  266 
be  in  writing,  279 
made,  When  and  where,  275 
sent,  Where,   266 
different  parties,  Indorsement, 

281 
drawer  is  not  required,  When 

notice,  268 

foreign  bill,  Protest  as,  276 
give  notice,  Omission,  268 
indorser  is  not  required,  When 

notice,  268 
present  or  negotiate,  Failure, 

274 

whom  given,  265 
Trade  or  assumed  names,  249 
Transaction    giving    rise  to  in- 
strument,    Statement    of, 
31 
Transferable,    Bills     and    notes, 

2 

Transfer  by  act  of  parties,  81 
Transfer    by    change    of    posses- 
sion, 7 
delivery,  81 


Transfer  by   indorsement,   82 
operation  of  law,  80 

Transferee     of     holder     in     due 
course,   119 

Transferor,        Warranties        of, 
172 

Transfer    without    indorsement^ 
255 

Two   or   more    persons,    Instru- 
ments payable  to,  254 


U 


Uncompleted  instruments,  247 
Unconditional,  Promise  or  order 

must  be,  27 

Undated  instruments,  247 
Uniform  negotiable  instruments 

law,    189 
Unqualified    order    or    promise, 

244 

"Unreasonable"  times,  242 
U.    S.    Mercantile    Law    adopted 

in,  16 
Negotiable  instruments  law  in, 

17 


Validity    and    negotiability    not 

affected,  When,  245 
Value,  114 

Amount  of,  115 

defined,  251 

paid,  Notice  before,  118 

presumed,  251 

received,  54 
Virtual  acceptance,  75 
Voluntary  delivery,  Absence  of, 
108 

W 

Waiver,  161 

in  instrument,  267 

of  notice,  267 

of   protest,  267 
Warehouse  receipts,  243 
Warranties,   172 
Warranty,    259 

of  indorser  without  qualifica- 
tion, 259 
What  a  consideration  is,  65 


INDEX  OF  SUBJECTS 


309 


What  is  bill  of  exchange,  271 
implicit      in      the      phrase 
"Holder    in    due    course," 
109 

indorsement,  252 
special  or  blank  indorsement, 

252 

vVhen  acceptance  for  drawer,  279 
acceptor  a  bankrupt,  278 
and  where  to  be  made,  275 
contracts  on  negotiable  paper 

are   incomplete,   248 
delay  is  excused,  161 
discharged,  269 
dishonored,  276 
dispensed  with,  262,  278 
dispensed  with,  Notice,  267 
drawn  to  fiscal  officer,  254 
excusable,  Delay,  275 
excused,  Delay,  262,  267 

Presentment,  275 
given,  Notice,  265 
holder  has  lien,  251 
instrument  is  negotiable,   242 
lost,  Recourse,  276 
made,  277 
mailed,    266 
necessary,     Notarial     act     of 

honor,  280 
Presentment,    260 
negotiable      instruments      be- 
come  overdue,    125 
mature,   124 

negotiated,  Instrument,  252 
not    a    holder    in    due    course, 

256 

notice  is   dispensed  with,   161 
not       required,       Notice       to 

drawer,   268 
indorser,   268 
one  bill,  281 
paid     by      secondary      party, 

270 

parts   are  negotiated,  281 
payable  on  demand,  246 
payable  to  bearer,  246 

order,  246 
presentment  for  acceptance  is 

excused,   133 
is  dispensed  with,  161 
protest  is  dispensed  with,  161 
recourse  accrues,  276 


When  validity  and  negotiability 

are  not  affected,  245 
whole  bill  is  discharged,  282 
words    are   to   be   printed    on 

face  of  note,  243 
Where    made,    Presentment    for 

acceptance,  274 
to  be  made,  When  and,  275 
Where   parties    reside   in    differ- 
ent places,  266 
same   place,   265 
drawer   and  drawee  are   same 

person,    271 

Whole  bill  is  discharged,  282 
sum    due    on    instrument,    In- 
dorsement must  be  order 
to  pay,  84 

Who    may    give    notice   of   dis- 
honor,   263 
Whom  given,  To,  265 
Wisconsin,     Negotiable     instru- 
ments  law  of,  239 
Within  state, .  Rate  of  damages, 

282 

Without  authority,  Incomplete 
instruments  completed, 
248 

grace,  Maturity,  263 
indorsement  by  broker,  Nego- 
tiation, 260 

indorsement,  Delivery,  95 
indorsements,   Transfer,  255 
qualification,  Warranty  of  in- 
dorser, 259 
reading,  Signing,  57 
statement     required,     Penalty 

for  taking  note,  243 

state,  Rate  of  damages,  282 

Words    of    politeness    in    a   bill, 

25 
to  be  printed  on  face  of  note, 

When,  243 

Writing,  Acceptance  in,  272 
for  honor  to  be  in,  279 
Promise  in,  272 
Written  acceptance,  74 
Written     acceptance     on     paper 

other  than  bill,  272 
acknowledgment,    23 
notice,  264 

on     instrument,     Indorsement 
must  be,  82  (i) 


1 


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